Streamline Your Financing Request

Want to become a priority with the banker?

Summarizing your financing package can help to prioritize how your banker reviews your financing request.

We recently submitted a client’s financing request to one of the Lenders on our lending matrix.  Our Lender Rep. said, “Holy cow, you guys are on top of it with your summary. Not many brokers make it this easy to review the package.”

We made it easy because the client provided us with their financials. The financials were comprehensive. It’s a multi-million dollar corporation and we’re at the early stage of presenting to the lender. We want to show something that’s easily digestible. We want to ease  the process for the lender to give us a prompt review and tell us their interest in offering the financing.

Summarizing your financials is easy to do.  When you have a lot of line items that lead up to one, just one, type of deduction or one type of income source, simply summarize it. Drop it down to as few lines as possible so the lender can do a quick review and say,  “Okay, I see the picture here.”

The Lender doesn’t need to know the granular line by line details at this early stage; you want the Lender to give a fast review to gauge their interest. If the Lender expresses interest and offers a Letter of Intent for the financing, you can present the more detailed financials with your full loan application package.

For each financing request, present a one or two page statement describing the background of the business, the reason for their financing request, and, in bold, large font, the amount of our financing request.

Our presentation package for the initial Lender review is compact yet complete.  The “first glimpse” by a Lender is sufficient to tell us if that particular Lender is the right fit for our client’s request, or if we need to locate a different Lender.

Visit our Financing Fodder YouTube Playlist on how to prepare your business loan request.

Lessons, Lenders, Decisions and Documents

Lessons with Lenders and Decision with Documents

When we locate the right Lender to provide a financing solution for your capital needs, the Lender requests documents as part of the application process.  We prefer to collect and review as many documents as possible early in our qualifying process.

We review each document you submit.  We do this to determine your business’ qualifications for the different financing products available through our matrix of Lenders.  But we also review your documents to look for any issues that might arise in the financing request and to resolve those issues before we submit your request to a Lender. Not all Lenders require all these documents, and occasionally we prefer to submit certain documents only after a detailed conversation with a Lender.

The definition of a successful Loan Application is the approval you want, the approval you need, and the approval that meets your timeline.

Early on in our long experience working in the financial services industry, we learned the lessons of successful applications:

Lesson 1: The Application can make or break the deal.  The Application is the source of all information and, ultimately, the guidepost for processing and Underwriting.  The more complete and accurate an Application, the better the Underwriting RESULT.  That RESULT is not only an approval, but a timely one.  The complete Application typically anticipates the Underwriter’s thinking and answers questions before they’re asked.

Lesson 2: It’s all about the paper.  Yes, even in the 21st Century (is it time yet to say, “Beam me up, Scotty?”), you have to support your Application with documents.

Lesson 3: The front-loader.  When you submit your Application with a complete basic set of documents at the onset, your process moves much quicker along to the goal line.

Lesson 4: Give ’em what they need, not what they want. Many times a Lender and/or Underwriter will ask for more documents than are necessary.  We’ve learned time and again to push-back on certain documents requests.  Often, we’ll ask the Underwriter for a valid reason for the document request.  Piling more documents into the Application package simply because they “want it” slows down your approval timeline.  You’d be surprised with how many times a requested document isn’t actually needed for the loan approval.

Lesson 5: Garbage in, garbage out.  A single document, presented incorrectly, can torpedo your financing request.  At the very least, a document that presents a challenge to the loan approval process should be presented with an accurate explanation, whether the document provides a positive or negative aspect to the entirety of the Application.  We learned long ago the value of the phrase, “Garbage in, garbage out.”

Lesson 6: Underwriting is Subjective.  Underwriting is more a subjective than an objective process. You want your Application to move quickly through the system for one important reason: don’t give the Underwriter time to develop a dislike for your Application.  When an Underwriter can move efficiently and quickly through a Loan Application, they don’t have time to develop negative opinions about the Application. The lingering-loan-application simply provides an Underwriter with more time to excessively scrutinize details that may not really be negative, but can develop into a negative aspect in the Underwriter’s subjective way of thinking.  You know, they’re human too.

Subscribe to our Youtube Channel and check out our video on DIY your Business Loan Application.

Visit our Financing Fodder YouTube Playlist for more information on how to prepare yourself when requesting a business loan.

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FEE Fi Fo Fum

When you walk into your bank to apply for Business Credit Financing, the most likely result is the Banker chats with you for a few minutes then hands you an application package for you to complete.

It’s a nice package. The Bank logo is prominently displayed and the information required is laid throughout the package.  The documents are listed in the package to make it easy for you to move through them in a logical progression.

When you’re done with the package, you bring it back to the Bank, along with your supporting documents (Tax returns, Updated Financials, etc.), and the application fee.

The bank isn’t taking any action or providing you with a decision, or even feedback on your financing request without the completed application and accompanying fees.

At Aurora Business Consulting, we’re happy to be your resource to spend the time BEFORE the application is presented to the Lender to determine your business’ qualifications, identify obstacles, consider strategies and outline the financing products that will help you to achieve financing success that will help to attain your goals. 

We find the right Lender for your needs.  It doesn’t stop there.  We’ll act as your “concierge” as we handle all the documentation and communications with the Lender.

In short, when you begin your process to find Business Credit Financing with us, we don’t simply hand you an application package and ask you to fill it out, return it and pay the fee. Yes, we do require a small investment from you in the form of our processing fee.  

We ask this and require this because there is a process to qualifying your financing request and we invest time to search for the best financing solutions for your financing needs.

Occasionally we’ll meet a new prospective client, conduct our initial telephone interview and discuss how we can move forward.  We send out our Introductory Broker Package which includes our Broker Fee Agreement, an Overview of the process and a Credit Authorization Form to run credit report(s).   

Occasionally the prospective client doesn’t return the package nor pay the fee. They disappear.

We understand that sometimes the upfront fee might seem to be an obstacle in the mind of the prospective client.  

But, we also understand the common procedures in our industry and that processing fees are a standard requirement. We’re not the Bank.  We’re YOUR Broker.  We work for you, not the Bank.  We’re investing our time and experience to a dedicated strategy: Find your requested financing.

We are not the right fit for everyone and that’s okay. Some of the clients we work with may have already been down a dead-end path with lost money and time to show for it.

We work with people that understand and value the time it takes to vet the banks that have specific appetites for your financing request.

We value your time and appreciate the consideration it takes to move forward to build your business. 

Visit our Financing Fodder YouTube Playlist for more information on how to prepare yourself when requesting a business loan.

Don’t Tell Me How To Make My Pizza!

We had a conversation with one of our Real Estate Broker Extraordinaire friends about all things business-related and, more specifically, about PIZZA.  She loves pizza similar to one of us here at Aurora Consulting (we’ll let you guess which one).

The chat happened while discussing an innovative pizza-restaurateur who created a wonderful and completely yummy pizza product.  This brilliant entrepreneur has come to realize his business is growing so rapidly that he suddenly finds himself in need of working capital to fund an expansion simply to keep up with the growth.

Good problem to have…except for the seeking working capital part.

The money part is where it gets challenging for this smart young pizza-entrepreneur.  He faces an important choice while facing the money challenge.

Should he search for a Lender to provide credit financing, or, surrender part of his business to an equity investor?

At Aurora Consulting, we believe this question has a simple answer.

Why surrender equity, and cede control, when you might very well find a credit solution to obtain the much needed working capital?  Yes, the answer is a question!  Or, the answer to the pizza-entrepreneur’s question can better be stated with the retort, “Don’t tell me how to make my pizza!”

Bringing in an equity investor for any growing business could (someday sooner or later) lead to your equity investor asserting control with how the business should be run.  That opinion could include, for this innovative pizza entrepreneur, suggestions on how to adjust the unique pizza recipe, you know, to make the product more cost-efficient.

Or the opinion from the new “partner” could be any number of other ideas, suggestions, opinions, plans, assertions, on growing the business, you know, to be more profitable.

That equity investor may have no idea at all about how to make pizza.

Many business owners are concerned with the idea of credit financing.  Let’s face it, credit financing can scare the heck out of many people.  Thank you to the global credit bust and subsequent recession for that anxiety-filled-ideation.  Borrowing money from a Lender, whether a traditional bank, or a non-traditional portfolio lender, is often a much more tranquil experience than you might think.

The question becomes one of finding the right lender.  The question never, ever, ever, becomes one of, “Hey, how about we use this ingredient in the pizza recipe instead of your original because this ingredient is cheaper and our product will be more profitable?”

Yeah, that question.  It’s not going to happen when you finance your capital cash needs with the right loan product and the right lender.

Visit our Financing Fodder YouTube Playlist for more information on how to prepare yourself when requesting a business loan.

Growth Can Be Sneaky

Growth?

Sometimes, it sneaks up on us!

And when it does, sometimes we need working capital to finance that growth.

That is, if you welcome growth and want to ride that momentum.

If change is NOT your thing, STOP reading NOW!

IF YOU ARE STILL READING, there are ways to access the capital you need to ride the growth wave very quickly.

You’ve been busy growing your business, and it’s paying off.  You’re keeping your financials current and do your best to predict future market trends, sales goals, and costs.

But growth can sneak up on you.  And when it does, you need to fund that growth, whether it’s for marketing expenses, operating capital, equipment purchases or other costs dynamic to your growing business. If you have sufficient cash assets, then you’re all set.  If you have a sufficient line of credit from your Bank, you’re good to go.

The problem is, when you set aside those cash assets in the first place, when you created that line of credit, you couldn’t perfectly predict the cash you’d need when the moment of truth arrived in the future.  Growth has a way of surprising you, a lot like flood waters after a heavy rainstorm, but in a good way.   You may find yourself scrambling to find the capital you need to fund that growth.

Traditionally, businesses caught in this capital-crunch-conundrum turn to their Banker for assistance for a new Line of Credit or an expansion on an existing Line.  Maybe a straight loan, or a loan mixed with a Line of Credit.  The business owner in this scenario can’t predict if the Banker can or will take on the appropriate risk to fund the right amount of capital needed.  The Banker may not see the optimistic opportunity presented by your sudden collision with your growth floodwaters.

Plus, the timeline to obtain the requisite capital funding from your Banker may be too lengthy to get the cash in hand quickly enough.

For the business owner confronted with the surprise of growth, the uncertainties faced with the traditional Bank financing may be too much to bear as they consider matching capital needs with growth experiences.

Pivot to the other extreme, business owners find themselves funding their capital requirements with funding that is quickly available and sufficient in dollar amounts, but the cost of that capital can be astronomical.

In the middle ground between these two financing scenarios exist alternative options.  Asset-Based Lending leaning against your Accounts Receivable or Inventory, or specialized financing against your Purchase Orders, provide timely, strategic and cost-effective solutions.

There are also hybrid solutions, financing that meets your short term needs while you work on completing the more complicated traditional financing package.

At Aurora Business Consulting we seek out those alternative financing solutions with a creative mind towards getting you the capital you need in an efficient timely basis to continue your business success story.

There’s no surprise in how we work, with diligence, enthusiasm, and experience.

Email Trevor for more info on how this may or may not work for you!

They Call It “Urban Blight”

Appraisers and lenders call it external obsolescence, and it’ll lower the value of your Commercial property accordingly.  Blight makes the surrounding commercial properties less desirable in multiple ways:

* Customers may be turned off and turn away from a business district.

* Business owners may steer their searches for their next store front or office location away from a blighted location.

A lack of desire to shop in a blighted location, rent space or purchase a building, not only affects the value of your commercial property when you own a building in that location, but you could consider it a negotiating tool if you’re negotiating a lease for space there.

We had a conversation this morning with a local business owner about blight.  She’s been growing her business over the past four years and in a particular downtown location over the past 9 months.  She’s rapidly outgrowing her current small studio/office space and she has her eye on a recently-vacated storefront across the street from her current location.  In fact, she told us that the more she thought about it, the more excited she became to make it happen.

Our conversation arose out of her possible need for a business line of credit to finance the acquisition and renovate the new storefront.  We pointed out the adjacent vacant location as we stood upstairs at her studio looking out at the street and the other thriving businesses in the area.

The worst news about this particular blighted location is that pretty much every other business owner in the area knows about the owner of this building, about how it’s been vacant for over a year, and about how that owner has never truly cared for this property’s external and maintenance appearance.  Some business owners banded together and filed complaints with the local economic development council.

Frustrating for those business owners, yes, but we suggested a negotiating opportunity for our potential business financing client.  We suggested she snap a photo of the blighted storefronts and present those to the property manager of the storefront she wants to rent when sitting down to complete lease negotiations.

The fact is, as too often happens in a blighted location, there are business owners seeking to be in that location and willing to ignore the blight and hoping that potential clients/customers will also ignore it.  In this instance, this business owner has had wonderful success with her customers on this blighted street.

So, she’s invested in the location already.  Her desire to grab that storefront and move her business to the next income-producing level isn’t clouding her judgment at all, but it certainly helped her forget about the nasty looking storefronts.  We pointed that out to her and made the negotiating suggestion.

Visit our Financing Fodder YouTube Playlist for more information on how to prepare yourself when requesting a business loan.

3 Types of Financing for Your Commercial Property Purchase

There are three types of financing for the purchase of a Commercial property.

TRADITIONAL COMMERCIAL MORTGAGE

The tried and true traditional method of financing for a Commercial mortgage can be the most favorable for a Borrower regarding rates and terms.  This method of financing can also be the most challenging.

For a traditional commercial mortgage, the Lender will require a minimum down payment of 25%.  You should be prepared for a larger down payment once the loan is well along in the processing.  More on that below.

The Lender in this type of financing also requires more documentation from you, the Borrower, and from the property you are purchasing.  This documentation runs the gamut from Bank Statements to tax returns, and any business documents for the Borrower’s business the Lender deems necessary.

For the property, a detailed Income and Expense statement is required.  If the property is a rental property with residential tenants subject to local municipal housing agency regulations, the Lender will require the appropriate documentation from any and all housing agencies involved in regulating the residential rentals.

The “traditional” commercial Lender appraises the property based not on market value, but rather on a calculation unique to each Lender to determine the Lender’s exposure to risk based on the Net Operating Income for the property.  Net Operating Income (NOI) is calculated from Gross rental income and a detailed ledger of expenses.  This valuation method can often lead to a final appraisal value lower than the purchase price and market value of the property.  Traditional Lenders use this method as a way of reducing risk exposure.

Therefore, you’ll want to be prepared to make a larger down payment at closing due to the Lender’s appraisal potentially being less than the purchase price AND the Lender’s criteria of lending no more than 75% of the appraised value of the property.

When we at Aurora Business Consulting prequalify you for a purchase, we look to qualify you first and foremost under the traditional lending method.

NON-TRADITIONAL COMMERCIAL MORTGAGE

A vibrant market exists of Lenders willing to lend on commercial properties with criteria more flexible and liberal in the risk-tolerance than traditional Lenders.  Rates and terms with these Lenders are frequently higher than what a Borrower would pay with a traditional Lender.  But the opportunity to find financing in this arena is substantially improved due to the more flexible criteria.

Examples of the flexibility in the Non-Traditional Lending field include:

  • Lower down payment requirements: as low as 10% down payment.
  • Quick documentation/reduced documentation requirements: for example, a cash-flow analysis of a Borrower’s bank statements over 12 or 24 months as an alternative verification method from tax returns.
  • Credit Scores. Non-Traditional Lenders can have a better appetite for lower credit scores.

SELLER FINANCING

Many purchasers of commercial properties often cannot qualify for loans, either through the Traditional or Non-Traditional lending channels.  The reasons for not qualifying are many and varied and may include the Borrower’s personal qualification criteria such as down payment, credit or income.  In other instances, the property being purchased may not qualify for Lender financing of any sort.

These purchasers can often negotiate with a property-Seller to “self-finance” a property purchase.  In this instance, the Seller holds a note from the Purchaser.  A mortgage is created and the appropriate lien is filed against the property.  The Purchaser/Borrower will make a down payment and then make monthly payments to the Seller, usually for a short term of anywhere from 3-7 years.

Typically the Purchaser/Borrower will then refinance that loan into either a Traditional or Non-Traditional mortgage after building sufficient qualifications.

Negotiating such a unique financing package can be complicated.

Visit our Financing Fodder YouTube Playlist for more information on how to prepare yourself when requesting a business loan.

Hiking the Finance Trail

When you go hiking in a large state park, there can be many different trailheads. If you have to meet your hiking partner at a specific parking location, it can be challenging to locate which trailhead is the right one. Selecting the hiking trail that works best for your endurance and skill level also takes careful research.

One of the worst things you can do is set out on a trail that you discover is the most difficult trail with perhaps steep, rocky hills. You soldier on anyway. Maybe you’re a little out of wind, but you get to the top of the hill.  You feel pretty good about making it up that hill. It’s the return trip going down the hill that may be most challenging for you.

The subsequent battering of your knees when you are reminded of the mistake of selecting this hiking trail. You wish you had checked the trail guide for the detailed descriptions about each trail so you could have made a better choice.

A business owner looking for the right financing, either a credit loan or a Commercial Mortgage Loan, faces similar challenges to the intrepid hiker in our story.

That’s what we do at Aurora Business Consulting.  We know the best “trails” to select for our clients because of our experience and knowing the right questions to ask, the potential pitfalls, the difficulty aspects, of each Lender.

For example, a business owner won’t know there are Lenders, both Traditional and Non-Traditional, who may have a better appetite for risk, and thus, a more lenient approach to calculating the qualifying income for the business.  And many times, the make or break for a loan application is just like getting to the top of that steep hill and the subsequent descent: the qualifying income is the part where the Lender finds challenges in approving your loan request, very much like the battering of your knees as you make your way down that hill.

We know how to get to the kernel of truth in how a Lender approaches risk-tolerance (or avoidance).  Let us find the right financing solution for you; we promise, your financing “hike” will feel like a smooth and easy path.

Visit our Financing Fodder YouTube Playlist for more information on how to prepare yourself when requesting a business loan.

Repayment of a Commercial Mortgage

Lenders offer different terms for repayment of your Commercial Mortgage loan. The repayment terms are a combination of the length of repayment, the interest rate and the amortization calculation.

As a simple example to demonstrate using a Residential property, a 30 Year Fixed Rate mortgage with a 30 Year amortization means the length of the loan is 30 Years, the Rate won’t change because it’s fixed, and the loan will be paid in full, or fully-amortized, at the end of the 30 year term based on equal monthly payments.

That example is a typical mortgage for a Residential property. Owners of Residential property may vary in the type of mortgage they take, but the loan illustrated above is a good starting point to illustrate the difference in Commercial loans.Commercial Lenders tend to Offer loans with different combinations of Term, Rate, and Amortization.

A Commercial Mortgage may have a term of 5, 7, 10, or 20 years. But the amortization period used to calculate the equal monthly payments may, in fact, be longer than the term of repayment. In addition, Lenders very often offer variable interest rates on their Commercial Mortgage loans.

Many Traditional Lenders for Commercial Mortgages offer a loan due in full repayment at the end of 7 years, or a “balloon payment”, with a One Year variable rate which adjusts annually for the 7 year term, and a monthly payment calculation based as if the loan were being repaid over a 30 year term.

Commercial Mortgage loans tend to be a riskier financing investment for Lenders.  And risk goes directly to the determination of repayment terms.  The less risk involved for a Lender on a loan, the more favorable the terms for the Borrower.  Thus, it is highly unusual to see a Commercial Mortgage loan offered with similar terms to a traditional Residential Mortgage loan.

The “balloon payment” due at the end of the term of the loan, whether it’s 5, 7, 10, or other, means the Lender expects the entire loan to be repaid at that time.  Many Lenders will offer a Borrower the opportunity to refinance their Commercial Mortgage loan with the same Lender.  And, as often happens, the Lender will offer similar terms on the newly-refinanced mortgage loan.  In this way, Lenders, especially Traditional Lenders, minimize their risk exposure on a given Commercial property and/or the Borrower.

As discussed in our previous blog, “The Right Conversation,” our role as a Broker is to secure the Commercial Mortgage financing solution you need, but also with terms that are most favorable for you and your Commercial property.

For example, we have several Lenders on our list who offer a Commercial Mortgage with terms very similar to the tried and true 30 Year Fixed rate Residential loan.  Call us now to find out how we can locate the best financing for your Commercial property.

Visit our Financing Fodder YouTube Playlist for more information on how to prepare yourself when requesting a business loan.

The Right Conversation

Too often, business owners have preconceived notions about financing their businesses, whether it’s for a commercial mortgage or credit financing. These ideas arise out of common perceptions about how traditional lenders make credit financing decisions.

And then they speak with their banker. We’ve already discussed the idea that your banker is very often a “gatekeeper” with the “keys to the vault.”  For a business owner, gaining access to the money in the vault can be a daunting process, and that initial conversation with the banker proves out this theory, especially with reinforcing those preconceived notions.

The truth is this: having a conversation, the right conversation, with someone who has your business’ best interests at heart can lead to a different result. That result can be financing the business owner needs to move forward and continue to build their business.

The right conversation with a broker who is working for you and not working for the lender will very quickly wipe away those preconceived notions.

Credit is one of those conversations. The concept that credit must be a very high score with impeccable payment histories is an idea that can be changed with the right conversation. Because there are lenders out there, non-traditional lenders, who have a more forgiving attitude towards credit blemishes.

Same with income tax returns and the dreaded “bottom line” income. Traditional lenders use a decidedly more rigid approach to income-qualifying. That rigid approach can lead to a denial of your loan request.

The right conversation with a broker who has the ability and who works with both traditional and non-traditional lenders will simply assist to “translate” the true income-producing potential of your business that will lead to a positive result.

Visit our Financing Fodder YouTube Playlist for more information on how to prepare yourself when requesting a business loan.