Commercial Loans and Fun Blog

Borrowers and Mortgage Brokers Can Now Deliver Commercial Loan Packages For Free Using Box.net

Do you need a commercial mortgage loan right now? Using C-Loans.com, you can submit your commercial loan application to 750 different commercial lenders in just four minutes, and C-Loans.com is free!

Years ago, if a commercial mortgage borrower or a commercial loan broker wanted to deliver a commercial loan package to a commercial lender, he would have to ship by snail mail a package of financial documents nearly one foot thick. After all, commercial lenders insist on collecting a financial statement and two years' tax returns on each borrower, a financial statement and two years' tax returns on each business owned by each borrower, a financial statement and two years' tax returns on the LLC or partnership that actually owns the property, and a copy of every single lease. That's a whole lot of documents!

With the rise of email, these loan documents are now usually delivered by email in the form of 10 to 15 different PDF's. However, most bankers have a limit on the size of any email attachment of 10MB. This means that in order for a commercial mortgage borrower or a commercial loan broker to deliver a complete loan package, they have to break the package up into six or seven smaller, separate emails. This is quite a messy inconvenience.

Now there is a far more efficient way to deliver commercial loan packages. Box.net is a free data storage software program available online where you safely store the financial information of the borrower. Simply scan each document - think of a tax return - and save it as a separate PDF. Then you upload the 10 to 15 PDF's, each containing a financial document like a lease - to a folder on Box.net. Finally, you simply send the lender a link to the folder on Box.net where he can find and view/download each of the PDF's.

It is much safer to password protect the link to this folder on Box.net, and using Box.net, this is easy to do.  You can then simply call the lender and give him the password over the phone.

It takes just five minutes to create your own free account on Box.net. They give you a certain amount of storage for free in hopes that you will so love the system that you will buy additional space from them.

Do you need a commercial mortgage loan right now? Using C-Loans.com, you can submit your commercial loan application to 750 different commercial lenders in just four minutes, and C-Loans.com is free!

Understanding the Interest Reserve and How to Compute It

Need a commercial construction loan right now? If the loan is larger than $4 million and the collateral is commercial and not residential (sorry, no homes, condo's or apartments), please write to me, George Blackburne, at george@blackburne.com or call me directly on my cell at 574-360-2486.  We have a terrific bond financing program.

When a developer secures a $2 million commercial construction loan from a bank to build a project, did you know that he starts to make monthly payments the very first month?

"Gee, George, that sounds awful. How can that poor developer afford to make the monthly payments on a $2 million loan when the property isn't built yet and generating rent? Those payments have to be in the range of $14,000 per month!"

It's not as bad as it seems. First of all, commercial construction loans are disbursed in small progress payments. During the early months of the loan, the outstanding balance might only be a few hundred thousand dollars. Secondly, the monthly payments owed to the bank on a commercial construction loan are just interest-only payments based on the outstanding balance. The interest-only monthly payments on an outstanding balance of just $200,000 aren't too bad.

Lastly, the construction loan budget contains an interest reserve to cover the construction period interest. In other words, the monthly loan payments on a commercial construction loan come right out of a little savings account built right into the construction loan budget.

"That sounds much better. But how does the bank know how large of an interest reserve the developer will need?"

One way to compute the interest reserve is for the developer and the bank to build a spreadsheet that lays out when all of the construction loan proceeds are expected to be disbursed. Then, using the spreadsheet, the bank can compute the exact amount of interest that will be needed in the interest reserve.

On smaller commercial construction loans, the bank will use a rule of thumb. Suppose a $2 million commercial construction loan has an estimated term of 1.5 years. During the early months of the loan, only a few thousand dollars will be disbursed. At the latter end of the term, almost all $2 million of the commercial construction loan will be disbursed.

Bankers will therefore assume that on average about half the loan will be disbursed over the 18 months. In this example, half of $2 million commercial construction loan is $1 million.

Therefore, to compute the required interest reserve, the banker will multiply $1 million (the average outstanding loan balance) times 7% per year (the annual interest rate) times 1.5 years (the anticipated term of the commercial construction loan), which equals $105,000.

"Gee, George, that seems simple enough. But what happens if the property takes longer to build or longer to lease than the developer expects?"

The developer is toast. He will have to start making the interest-only payments out of his personal pocket, and if he can't, the bank may decide to foreclose on him immediately. Hey, there's a reason why developers make the big bucks. They take some serious risks.

Need a commercial construction loan right now? If the loan is larger than $4 million and the collateral is commercial and not residential (sorry, no homes, condo's or apartments), please write to me, George Blackburne, at george@blackburne.com or call me directly on my cell at 574-360-2486. We have a terrific bond financing program.

If One Commercial Loan Officer Turns You Down, Just Call Another One at the Very Same Bank

Need to place a commercial mortgage loan right now? You can submit your commercial loan in 750 different commercial lenders in just four minutes using C-Loans.com. And C-Loans.com is free!

Placing a commercial mortgage loan with a bank is more of an art than a science. Below you will find some placement tips that may help you to close your commercial loan:

1. Before you send a commercial loan package to a lender, it is customary to call the commercial loan officer first to run the deal by him.
2. Hugely important tip: Whenever you call a loan officer to run a deal by him, make sure you first ask him, "Hey, John, this is George Blackburne at C-Loans, and I'd like to run a deal by you. Did I catch you at a bad time? I'll be happy to call back later if you're swamped right now." Brokers and borrowers who fail to do this will find that the loan officer will only listen long enough to find the first excuse to turn the deal down - just because he's harried at the moment and doesn't want to be bothered.
3. When you do send a package, don't send some great, big, thick package that will take the loan officer five hours to review. Instead, just send a two or three page Executive Loan Summary. Most commercial mortgage loan documents are now delivered by email, instead of by snail mail or Federal Express.
4. Make sure your Executive Loan Summary includes at least one photograph of the property.
5. When a commercial loan officer receives a PDF by email, in the back of his mind he is worried that the PDF might contain 400 pages of documentation. As a result, he will tend to put off reviewing it.
6. I therefore like to include in the body of the short email words like the following: "John, attached is a short Executive Loan Summary on the deal we discussed the other day. It's just three pages long, and there's a nice color photograph of the property. It's really nice!"
7. It is customary in commercial mortgage finance to call the lender a few hours later and say, "Hey, John, this is George over at C-Loans. I am just calling to make sure you received the Executive Loan Summary on that deal we discussed the other day. I know you haven't had time to review it yet. I just need to verify that you received it."
8. Now in reality, what you're really doing when you make the above call is to gently kick the commercial loan officer in the booty to read the package. He's not lazy. He's just a veteran who knows that many commercial mortgage brokers will ship out a loan package to 30 different lenders. It's called shotgunning.  Your kick-in-the booty call is a welcome message to the commercial loan officer that this deal is alive and waiting just for him, if he likes it.
9. Every commercial mortgage deal ever originated has a few black hairs (flaws). There is no such thing as a perfect commercial mortgage deal. Therefore, if you are going to close a commercial mortgage loan, you need to find a commercial loan officer who both likes you and is willing to fight for your loan in Loan Committee.
10. If the first commercial loan officer that you call at Bank of America, for example, just brushes you off (turns you down without seriously considering the deal, just to get rid of you), don't give up! Just call a different commercial loan officer at Bank of America and try to sell him on the deal. Over the years I have closed numerous commercial loans this way.
11. Not all commercial mortgage loan officers are the same. Some will fight hard in Loan Committee to sell your deal, and others are as wimpy in Loan Committee as a spaghetti noodle. Based on a lifetime of experience in commercial real estate finance, here is my pecking order of commercial loan officers, from best to worst: Asian women (absolutely the best!), women on commission, men on commission, men on salary, and women on salary (very often too scared of losing their jobs to fight for you).
12. If your deal gets turned over to commercial loan officer that you can tell is an absolute wimp, pull the deal! Don't let the wimp work on it. The wimp will simply look for the first black hair and then turn you down. And since every commercial mortgage deal has a black hair, all you are doing is fouling the water at that bank. Why not pull the package back and resubmit it to a different loan officer ten days later?
13. My final tip is to learn to use Box.net (free data storage) to send your loan packages. This way the banker can just pull down the supporting loan documents (tax returns, financial statements, etc.) as he needs them.

Need to place a commercial mortgage loan right now? You can submit your commercial loan in 750 different commercial lenders in just four minutes using C-Loans.com. And C-Loans.com is free!