If you are in the commercial loan business, be sure to carefully study this article. If not, enjoy my funny pictures and move on with your day. Today's blog article is just a specialized sales training lesson for commercial loan brokers.
Yesterday one of my commercial loan officers responded to an email commercial loan inquiry by sending an email in response. An email? An email? I threw an enormous hissy fit. See my picture above. As a commercial loan officer (or broker), you are never going to make a sale by email. Never. Ever. Not once. Nada. Zip. Zero. Zilch. You've got to pick up the telephone and make a call. Never try to solicit a commercial loan package by email. Instead, you need to get on the phone and sell.
Why? The documentation requirements for a typical commercial loan are pretty lengthy, so no borrower is going to assemble a thick commercial loan package without verbal assurances from his commercial loan officer that the black hairs sprouting out of his deal are not deal-killers. Please re-read this last sentence.
A black hair is a flaw in the deal. Examples of black hairs include vacancies in the building, a major lease that is close to expiration, a divorce and bankruptcy of the borrower six years ago, or a net worth less than the size of the loan. A comprehensive list of possible black hairs would stretch for hundreds of yards.
"George, I understand that some commercial loans have black hairs, but what if the subject deal doesn't have a black hair?"
Every commercial loan ever written had a least two or three black hairs. No commercial loan request is ever perfect. The art of underwriting commercial loans is not the elimination of those deals with flaws, but rather the wise judgment of which black hairs are irrelevant.
Your borrower knows that his deal has flaws. Before he will go to all of the work to compile a commercial loan package for you, he needs to hear your cultured, confident voice reassuring him that his particular black hairs are not deal-killers. This is why merely sending an email will almost never fetch you a commercial loan package. Lesson point: Call-call-call.
We all remember the old joke about how two bulls trot to the top of a hill and look down over a herd of gorgeous, fertile cows. The young bull turns to the old bull and says, "Hey, Pops, let's run down and kiss one of those cows." To which the older, wiser bull replies, "Son, let's walk down and kiss them all." Yeah-yeah, you've heard that joke a thousand times before; but that joke has a very important moral for commercial loan originators.
The newbie commercial loan officer - the young bull - figures that since he cannot close his commercial loan until he gets a complete package, he might as well ask for every document right away. "Hey, the sooner the borrower starts working on all of these documents, the sooner he can close his loan, right?"
Hmmm..., let's look at just some of the documents required in a complete, bank-quality commercial loan package:
- Updated Personal Financial Statement (2 hours of work)
- 2016 Personal Tax Return (35 pages to copy)
- 2015 Personal Tax Return (35 pages to copy)
- Actual Income and Expense Statement For the Past 12 Months (one hour to prepare)
- Schedule of Leases (one to two hours to prepare)
- Copies of all Leases (100+ pages to copy)
- Updated Financial Statement on the Borrowers Business (two weeks for accountant to prepare)
- 2016 Tax Return on the Borrower's Business (45 pages to copy)
- 2015 Tax Return on the Borrower's Business (45 pages to copy)
- Updated Financial Statementon the LLC that owns the Property (one hour to prepare)
And so on...
You can bet the farm that the borrower is going to procrastninate; and as the borrower is procrastinating, he will receive 37 competing commercial loan offers. The foolish young bull failed to "get the loan off the street."
The young bull was a flipping idiot for requesting all of those documents in one shot. The work load is impossibly intimidating. No borrower, after just speaking with a commercial loan agent one time, is going to prepare such a huge commercial loan package. In my joke, the young bull gets kissed once. The newbie commercial loan officer won't even receive a single package if he requests a complete package. Not one! What an flipping idiot! I have often told my sons, "The commercial loan agent who initially asks for the least number of documents usually gets the deal."
Okay, so how should a wise, old bull ask for a commercial loan package? "The deal sounds good, Mr. Borrower. Please send me a package. Here's my email address..."
Notice that the wise, old bull did NOT give the borrower an extensive laundry list of documents to gather. Instead, he just asked for an amorphous (without a clear definition) "package". He never actually defines the documents that go into a "package". If the borrower tries to pin him down as to what documents should be in the package, the wise, old bull will flip the question around, "What documents can you immediately send me?"
In school we all studied the concept of inertia. A body at rest tends to stay at rest. A body in motion tends to stay in motion. Here the body is the loan package. It's much easier to get a small boulder rolling than a large one, so let's ask for the smallest loan package (boulder) possible. Let's get this loan package rolling in our direction, even if the speed of the roll is slow, because a body in motion tends to stay in motion.
Once the borrower chooses you to receive his package, he is usually very loathe to start all over with some competitor. Let me make this VERY important point again in a different way. Once a borrower starts starts sending documents (that small, emorphous "package"), to Loan Officer A, he almost never stops and starts sending his documents to Loan Officer B. Yeah, a few borrowers are "whores", but for the most part, borrowers choose just one commercial loan officer. Note to self: Be that guy who first gets the package.
The other day I caught one of my loan officers asking for the borrower's tax returns right out of the box. It was the first thing he requested. My head exploded. WTFudge??? Why didn't he just ask for the broomstick of the Wicked Witch of the West too? Only ask for tax returns after the borrower has already submitted his original package, and you have been able to reassure him that all is well. By then the borrower has an investment of time in using you as his commercial loan agent.
Do you need a high-LTV commercial loan? My hard money shop, Blackburne & Sons, will gladly lend up to 75% LTV on standard commercial properties of less than 35 years of age. Will your bank only lend you 68% LTV on your apartment building, office building, retail center, or industrial building? We'll give you the extra dollars you need.
Are you pretty wealthy? You surely have dough set aside for your retirement in your IRA and in your pension plan. You may also have monies that you're saving for your kid's college. You could be earning 8% to 12% in first mortgages. This is our 37th year in business. I'm an Eagle Scout, and so are my two sons. Come camp on our accredited investor list and look at six or so first mortgage offerings every month. Feel free to just watch for years. No one will ever call you to sell you a $20,000 first mortgage investment. We sell exclusively by email. Since 1980.