Commercial Loans Blog

Commercial Loan Closing Tricks

Posted by George Blackburne on Fri, Feb 3, 2012

There are a lot of different ways to structure a commercial loan in order to close a tougher deal. Here are just a few:

  1. Carrying Back a Second Mortgage on a Different Property. Suppose a seller is motivated to sell his property, and your buyer lacks the full 35% cash down payment often required by banks nowadays. The typical bank will also prohibit junior financing. Here's a trick: Get the seller to carry back his second mortgage on a different property owned by the buyer, say, a rental home or his vacation home.

  2. Subordination for a Partial Paydown.  At Blackburne & Sons, we use this trick all of the time.  Suppose a former seller has a $1 million ballooning note.  Because commercial real estate has fallen about 45% since the start of the Great Recession, perhaps the largest prudent new commercial loan that can be made is just $600,000. Many times the former seller will take just $600,000 now and will subordinate his remaining $400,000 as a second mortgage.  Most banks today will not allow junior financing, but Blackburne & Sons will!

  3. Blanket Other Collateral.  If the deal is close, frequently a commercial lender can be convinced to do the deal if he can also have a second mortgage on the borrower's personal residence and/or another property.

  4. Bring In an Outside Personal Guarantor.  If the borrower's credit is flawed or his net worth is small compared to the loan request, you can often help a commercial lender to get comfortable by bringing in the borrower's father, brother, or friend to personally guarantee the loan.

  5. Have the Borrower Bring Cash to the Closing Table.  Let's suppose the borrower has a $720,000 ballooning loan, but he can only qualify for a $600,000 refinance.  The borrower may be able to raise the remaining $120,000 by selling some stocks, liquidating his IRA, or refinancing his house.

  6. Convince the Bank to Take a Discounted Pay Off (DPO).  Banks have never been more willing to accept 65 cents on the dollar in order to get a commercial loan off the books.  Most banks are under heavy pressure from their regulators to clear their troubled commercial loans off the books.  At Blackburne & Sons, we have seen a great many banks accept DPO's recently.  We love to help borrowers pay off banks at a discount.

  7. Sometimes the Borrower Just Has to Accept a Smaller Loan.  Every borrower wants max cash, but sometimes he just needs to be convinced that you are getting him the most cash that is possible.

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Topics: closing tricks