Small commercial loans are infinitely easier to close than large commercial loans. By “small commercial loans”, I mean commercial loans of less than $2 million.
Why are small commercial loans so much easier to close?
- Small commercial loans do not have to be absolutely perfect. The loan amount is small, so any loss on the deal is also likely to be small. In contrast, if a bank is contemplating making a $4 million commercial real estate loan, that loan better be almost perfect. After all, if a loan of that size goes bad, somebody’s head is going to roll. And let’s face it, you and I are mortgage brokers. Borrowers with perfect deals seldom come to us.
- There are far more banks and hard money lenders competing to make small commercial loans than there are competing to make huge commercial loans. Only a small percentage of commercial real estate lenders feel comfortable making such large loans. Therefore, there are far more lenders who might potentially make your small commercial loan than your large commercial loan.
- Normally only one or two executives have to sign off on commercial real estate loans smaller than $2 million. Therefore there is a less of a chance that of one them will have a pet peeve about this kind of property, this town, or this particular borrower. With a full Loan Committee of eight executives reviewing your large deal, the chances of successfully running the gauntlet of pet peeves is much lower.
- If you are a mortgage broker, you will find the typical small commercial borrower is far less sophisticated and far more appreciative of your help. The owner of a small commercial property is likely to be a busy business owner, whose time is better spent running his own business, rather than shopping his commercial loan to 200 banks.
- The guys who own the really large commercial properties are professional investors. All they do in life is manage, lease, and finance commercial properties, so they often already have a dozen direct lenders in their back pocket. They don’t need you … unless their deal is a complete stinker.
- The loan officers who work for the really large commercial lenders can be very cliquish. If you, as a relative newbie commercial mortgage broker, try to bring them a loan, they’ll often just shoot you down. But if one of the good ‘ole boys brings them the exact same deal, they’ll close it for him. The loan officers who work on small commercial loans are usually much more friendly and helpful.
- If you stick to small commercial loans, there will be less competition from veteran commercial mortgage brokers. You are probably taking this course because your commercial mortgage brokerage business is struggling. The old veterans are probably much better at this stuff than you. They will outsell you almost every time because they sound so much more knowledgeable. The good news is that these old veterans will seldom work on small commercial loans anymore. Therefore, it will be far easier for you, the newbie commercial mortgage broker, to win the borrower’s business.
- The moral of the story, therefore, is that if your commercial mortgage business is not making any money, stop working on commercial loans larger than $2 million.