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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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.

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.