Commercial Loans and Fun Blog

If you want to get into the commercial loan brokerage business, you first need to learn how to underwrite commercial loans. It is a surprisingly straight-forward process. You'll need to learn about a dozen ratios and about 200 terms of art specific to commercial real estate finance; but you can master most of these in a single, very long day.

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One of the tools that I use when I teach brokers the commercial loan business is my Commercial Mortgage Underwriting Manual. We are in the process right now of adding our entire commercial loan training manual to the free Knowledge Base section our flagship website, C-Loans.com.

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Today I am going to give you links to the first ten pages of our commercial loan underwriting manual, so you can begin your study today.

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The Table of Contents lists which lessons have so far been published.
We start with a short introduction.
Much of the underwriting of commercial loans can be boiled down to the results of three main ratios.
First we discuss the Loan-to-Value Ratio, as it pertains to commercial loans.
Next we talk about the Debt Ratios of the particular borrowers.
We finish with a discussion of the Debt Service Coverage Ratio, perhaps the single most important ratio in all of commercial real estate finance.
What is a Loan Constant? Without knowing the loan constant, the Debt Service Coverage Ratio calculation is meaningless.
The big question for the borrower is, "How large of a commercial loan can I get?"
The purpose of the Operating Expense Ratio is to catch cheaters trying to get a commercial loan larger than they deserve.
You need to understand the different types of commercial leases.

If you are a bank loan officer responsible for making commercial real estate loans, or if you are a commercial mortgage broker, it is absolutely essential that you grasp the following concept:

Commercial loan origination is a race, not a rate bidding war.

men in suits running The practical effects of this are HUGE, and I'll explain them in a bit below.

I own two commercial mortgage companies - Blackburne & Sons, which is a very old hard money commercial mortgage company, and C-Loans, Inc., which is the largest of the commercial mortgage portals.

I started to notice that some of the very cheapest commercial real estate lenders on C-Loans.com were not closing many commercial mortgage loans for us. At the same time, a handful of obscure banks, with rates 25 to 50 basis points more expensive than the cheaper lenders, were absolutely tearing up the system. We have had several relatively unknown little commercial lenders close more than 50 commercial loans for C-Loans.

When I would ask the big banks why they weren't closing many commercial loans for us, they would often answer, "Gee, George, I call the borrowers, but they never return my phone calls." Strange, huh?

Over time I finally recognized that once a commercial mortgage borrower reaches a commercial lender with reasonable rates - say, within 0.50% of the best market rate - he stops returning phone calls from other lenders.

There is a very important moral to this story. If you want to succeed as a commercial mortgage loan originator, you must learn to drop everything the moment you get a commercial mortgage lead and call the borrower immediately.

For example, suppose you arrive at work wanting to call your child's teacher about his missed homework assignment. You also find a fresh commercial mortgage lead on your desk or in your email box. Who do you call first?

It's all about speed, silly! Call your commercial mortgage leads at once. Remember, once a commercial mortgage borrower reaches a commercial lender with reasonable rates, he stops returning phone call from competing lenders.

For me, this is counter-intuitive. You would think that a sophisticated commercial borrower would shop the market. In reality, they simply don't. It probably has to do with the fact that their time is so very valuable, either flipping commercial buildings or manufacturing widgets.

Whatever the reason, the important point to grasp is that most commercial borrowers do surprisingly little loan shopping. Therefore, if you are not the first commercial mortgage loan officer to reach them, you're probably already toast.

So learn your lesson. When you get a commercial mortgage lead - BOOM - drop everything, and call that lead immediately!