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Direct Business and Commercial Lenders
I am a residential mortgage loan originator and want to diversify my mortgage origination business to business and Commercial loans. Can you please give me a comprehensive detailed step by step overview on how to about it? How does you learn the business and Commercial Lending process as a Commercial business and Commercial loan broker? What type of business and Commercial loan programs are there? How do you become affected with a wholesale direct Commercial lender? What are the eligibility and requirements to be a business and Commercial lender? How do you get leads on business and Commercial loans? Can you please share three case scenarios on how business and Commercial Loan Officers generate leads? With who and how do you Network with potential referral partners? How can do subtly merge your residential lending business model with a business and Business and Lending Platform? Do business and Commercial Loan Officers need to get licensed and if so what are the licensing and bonding requirements? Thank you in advance.
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2 Replies
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Shifting from Residential to Commercial Mortgage Origination
Shifting your focus to commercial mortgage origination offers a strategic opportunity to broaden your scope of business and increase your revenue.
Below is a detailed outline for making this shift.
Acquiring the Commercial Lending Process
Education and Training
- Take courses on real estate financing from the MBA.
- Enroll in programs offered by the CMSA.
- Obtain the Certified Commercial Investment Member (CCIM) designation.
- Become a member of NACLB for information and networking opportunities.
Recognizing Major Changes
- A borrower’s capacity to repay is less important than what is generated from the property.
- Debt service coverage ratio (DSCR) and LTV (Loan to Value) are also critical, along with NOI-Net Operating Income.
- Specific documentation is required, like rent rolls and operating statements.
- 60-90 days period for closing as compared to 30-45 days for residential
Mentoring
- Observe operations of skilled commercial lenders.
- Work with junior commercial brokers or experienced commercial brokers for assistance on initial deals.
- Commercial real estate investment groups.
Types of Commercial Loans
- Conventional Commercial Loans
- Credit Unions, Banks
- Usually, Terms are 5-10 years with 15-25 year amortization.
- Compared to residential, lower LTVs (65%-75%)
- The primary consideration is the borrower’s creditworthiness and the property’s performance.
SBA Loans
- The general purpose of SBA 7A loans up to 5 million
- SBA 504 loans for commercial real estate and equipment financing (Max limit is $5.5 million)
- Lesser believed payments and longer terms of payment (maximum 25 years duration)
- Needs further proof and endorsement of SBA
CMBS (Commercial Mortgage-Backed Securities)
- The greater amount of funding (commonly starting with $2M)
- Availability of non-recourse clauses
- Fixed interest for 5-10 years
- More severe penalties for paying beforehand
Bridge Loans
- Financing is limited (start is 6 months, and max is 36 months).
- Closer to the mark interest rates but quicker to close.
- Utilized for acquiring, refinancing, or repositioning a property.
- Advanced relaxed standards for nursing.
Hard Money/Private Money
- The main reliance is on evaluating the property to give loans.
- Loans close quickly but incur higher interest charges and more fees.
- Normally issued for fix-and-flip properties or other transitional buildings.
- Not much documentation is needed.
- Becoming Affiliated with Wholesale Commercial Products.
- Affiliated with the bulk purchase of commercial products.
Research and Identification
- Build a list of readily participating commercial wholesale lenders available in your region.
- Go through their programs and study the guidelines and requirements for being a broker.
- Take part in mortgage and trade fairs.
Application Process
- Bundle and submit supporting documents along with broker applications.
- Present your business plan alongside your given industry experience.
- Prepare to undergo merciless assessment reviews of your business.
Sign NDA and Broker agreements.
Building Relationship
- Set intro meetings and presentations with an account manager.
- Encourage specific submission platform training.
- Learn to justify claims made on their documents.
- Remain connected and not disengaged.
Eligibility and Requirements for Commercial Brokers
- What so ever is outside of commercial is just business.
- Form the business type your commercial deals with using LLC or Corporation choices.
- Obtain all relevant business permits.
- Get Errors and Omissions Liability Insurance.
- Acquire, Lease Out, and/or Register Office Spaces
Financial Needs
- Have sufficient funds to cover running costs, leasing, and other expenses.
- Form alliances with various financial institutions.
- Open Accounts in Trust (Escrow) whenever necessary.
Professional Background
- Possess relevant skills and experience to support funding requests (Subordinated debt).
- Prepare and present reports of successful funding.
- Gather professional recommendations from former clients.
Generating New Clients For Investment Loans
Active Promotion
- Legal practitioners with an emphasis on real estate.
- Specialized accountants and tax inspectors.
- Real estate brokers and property sales agents.
- Real estate management experts.
- Intermediaries and business consultants.
- Commercial banking relations personnel.
- Economic improvement agencies.
Business Expansion and Advertising.
- Create a digital presence that promotes and focuses on doing business using commercial funds.
- Develop articles that inform business owners.
- Conduct seminars on investing in business property.
- Conduct responsive online marketing specifically on business funds.
- Create automated email workflows for prospective clients.
Policy Participation
- Become a member of organizations dealing with commercial property investment.
- Take part in selected business chamber activities.
- Go to targeted trade shows, marketing events, and conferences.
- Publish in commercial magazines and periodicals.
Lead Generation Scenarios
Scenario One: Developing Realtor Referral Partners
- John concentrated purely on developing relationships with mass commercial real estate brokers.
- Attends all locally organized commercial real estate social and professional gatherings.
- He created his own “Merchant Lunch and Learn” cadre, where he taught agents the basics of commercial financing and other ancillary services, such as business expansion.
- Assisted agents with preliminary offer analyses before they were put on the market.
- Created an automated system for qualifying properties step-by-step.
Accomplishment: Earned 70% of business from agent referrals with them, averaging a loan size of $2.2M.
Case 2: The Business Banking Alliance Builder.
Sarah fostered connections with business bankers at the local banks who:
- Were unable to process specific loans because of regulatory restrictions.
- Had clients needing amounts beyond their budget.
- Needed shorter turnaround times than the bank offered.
- She developed an organized referral program with distinct lines of communication and offered consistent feedback.
- She positioned herself as a trustworthy information source and provided regular market updates.
Result: In the first year of transactions alone, 18 were generated, which multiplied to an average of $1.4 million each.
Case 3: The Industry Specialist
- Michael made it a point to work solely on medical office financing.
- Joined healthcare industry associations.
- Sponsored medical conference events.
- Created specialized content addressing the novel necessities of medical practices.
- Medical equipment suppliers who knew when the practices were expanding supplied him with relevant contacts.
- For this property type, he built a reputation as the undisputed authority and…
Result: Paid marketing yielded results. He closed 12 transactions in his niche with an average of $3.8 million. Due to his specialized knowledge, he could charge premium fees and close at higher margins.
Networking with Referral Partners
Strategic Partner Selection
- Know the partners most relevant to your target clients and work with them often.
- Aim for quality partnerships instead of focusing on many.
- Research your meeting partners and learn about their business before the meeting.
Value Proposition Development
- Define clearly what their value is.
- Communicate your work as a commercial lender.
- Clarify how you protect their client relationships.
- Show how easily you do their job.
Customer Relationship Building Activities
- Educational sessions for teaching distinctions of commercial lending.
- One-on-one meetings focused on appreciating clients.
- Joint marketing with appreciative client-side events.
- Regular information, status, and check-in updates.
- Appreciation sign check mark before and after events.
- Client supporting events
Systematic Follow-Up
- Set up a CRM to monitor referral sources.
- Communicate schedules and share important updates about the industry.
- Reward promptly and acknowledge referrals on time.
Residential and Commercial Platforms Merging
Integrating Business Structures
- Design unique marketing and branding elements while maintaining relationship cohesion.
- Create and develop branding and marketing materials that tell the same story.
- Consider developing different websites for the entities that interlink.
- Establish relevant workflows for the various types of loans.
Team Development
- Employ and/or train staff to manage commercial documentation.
- Clearly articulate the job descriptions for all positions.
- Collate information to develop shared resources where necessary.
- Develop training programs that familiarize staff with other departments.
Client Education
- Send alerts to inform current residential loan clients about capabilities involving commercial loans.
- Prepare and provide instructional content for the commercial loan process.
- Conduct webinars or seminars for prospective clients dealing with investment properties.
- Develop and provide successful transaction case studies.
Cross Selling Strategies
- Examine residential client databases to locate business owners.
- Search for clients invested in residential premises with high rental yields.
- Conduct analyses of properties that clients are qualified to rent out as investments.
- Develop existing client referral programs.
Licenses and Regulatory Requirements
- Licensing for Commercial Mortgage Brokers can be controlled within the state limit.
- Based on the location, there are different standards that may not need a specific license in some situations.
- This is different from residential mortgage origination, which requires a mortgage loan originator license in all regions due to the NMLS framework.
State-by-State Variations
- Some states have no limit to having a distinct license as a commercial broker.
- Several states also require commercial mortgage vendors to have an official license.
- Some states govern these under laws that deal with real estate brokers or business brokers.
Common Materials
- Fees and information for state licensing applications.
- Conduct background investigations.
- Inquiry into set educational standards which differ significantly among regions.
- Documents that outline experience in the field.
- Verification of the financial standing to undergo a surety bond that fluctuates between $10,000 and $50,000.
Federal Guidelines
- Other registrations could be needed when working with SBA loans.
- The compliance programs for anti-money laundering and fraud.
- FTC and CFPB guidelines regarding advertising and business practices.
Professional Suggestions
- Speak with a legal specialist licensed to practice in your jurisdiction.
- Get in touch with your state’s financial regulatory body.
- Look into membership with some associations that focus on compliance updates.
- I suggest contacting your state’s Department of Financial Institutions or banking division for some of the requirements in your area.
- They differ considerably, and the criteria shift periodically.
Is there any part of the transition strategy you would like me to expand on?
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Yes, please. I would appreciate you to elaborate on all aspects of this commercial lending transition strategy.