Commercial borrowers frustrated by process

Two calls in a row this week have come in from borrowers that feel very frustrated with the lack of service being given to them from other lenders and other brokers. It would appear that the amount of financing they are seeking is too small for a corporate banker to review and too large or complicated for a bank branch to review. One client advised that they had a residential mortgage broker looking to get them financing and they had been waiting 4 months for an answer.

As a borrower it is important to understand what it is you are looking for. The easiest place to start is to determine what the loan to value of your request is. For example, if you are purchasing a property for $150,000 you should have at least $52,500 available for a down payment (or 35%). Banks and lenders may not actually require that much as a down payment however when talking to a bank or broker you should let them know how much you have and how much you are looking for. Then proceed to ask them about the last few deals they did and how much down payment or equity the borrower had to have. If you are simply looking for answers or direction be very specific about what you need.

Banks and brokers will tend to look at a deal and keep asking for paperwork until they know they have a deal. This happens because financing requests can be structured in a variety of ways to get the borrower what they need. Unfortunately banks and brokers don’t always get the right information upfront and it can be very frustrating as a borrower to wait while they figure it out. Don’t despair – just put time frames around your request so that you can move on to the next person if your needs are not met.

If you have a transaction you would like some direction on, please do not hesitate to email or visit

Land financing back in play

It would appear that with the limited amount of lending opportunities available in the marketplace that private lenders have been prepared to reconsider their policies for providing mortgages on parcels of land and future development sites. For the past few years it was difficult or nearly impossible to obtain financing for land as most lenders chose to finance income producing real estate that generated the required cash flow to service a mortgage payment. Recently we have seen private lenders being selective about the land deals they finance by limiting the amount they lend (typically less than 50% of what a property is worth) and ensuring the location of the property is strong. With market values having stabilized a private lender can put out their capital with limited exposure and feel confident that they will be able to earn their required return even if they need to foreclose and take a property back. At conservative loan to value levels the chance of them losing their principal and interest is relatively low. While there is still a lot of land in the market that is over financed opportunities still exist for developers (and investment groups) that have not over leveraged their land to now consider developing out and bringing new supply to market.

If you have a land deal you would like to discuss, please email or visit

Loan to value versus loan to cost

Quite often we will have a client ask us to help them finance a property that they have been able to purchase for an amount that is less than what the property is worth based on an appraisal. When banks and lenders provide a mortgage to a borrower who is purchasing a property they typically will do so based on the lower of purchase price and value. For example, if a borrower is purchasing a property for $100,000 but has an appraisal showing that it is worth $150,000 a bank or lender will give them a mortgage based on the $100,000 price NOT the $150,000 appraised value. Why? In this example if a 90% mortgage was given to the borrower based on the value, the lender would be giving the borrower $135,000 ($150,000 X 90%). That means a borrower would pocket $35,000 and the mortgage would arguably be more than what the property is worth. Lots of opportunity for mortgage fraud to be committed and banks would be stuck with properties that they cannot sell to recover the mortgage amount. If you would like to ask us about your deal, please email or visit

New business needs capital

Need: mortgage to purchase a commercial property
Challenge: no financial statements to show business history

To obtain financing for the purchase of a real estate property, most banks want to see that the company can make the monthly mortgage payments. The math formula used by lenders to determine how much to lend a company is based on a range of $1.10 to $1.25 of income for every $1.00 of debt. The bank wants to know that there is more than enough income available to ensure the mortgage payments are made. A two year (or more) average will be used by examining the financial statements of the business to get an idea of what the business can afford. New businesses who do not have the financial history need to present their transaction in a different way to the bank. Using a mortgage broker who understands the market and the requirement of the banks can help your business structure its transaction. A good broker will help you present your application to a bank to address all of their concerns – even if you are a new business. If you would like to speak with us about your deal, email or visit