Private Commercial Mortgage Loans - How to Approach a Hard Money Lender - Keys to Approval


Private commercial mortgage lenders are busier than ever today. By some estimates, bank lending against commercial property has dropped off by more than 80%. Many rejected borrowers will look to private lenders. That means thousands and thousands of good deals are out there, and every one of them is competing with you for a lenders time, attention and money.

Lenders will appreciate commercial property investors who respect their time. If you approach them correctly, with the right information in the right format, they will give your deal an honest look and, if your deal meets their parameters, they will fund you quickly and efficiently.

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I strongly recommend that you summarize your loan scenario on one 8.5 X 11 inch sheet of paper. You may be tempted to write up a multi-page description full of details, projections and analysis. Don't. The goal of the initial approach is to get a loan officer interested, nothing more. A borrower who has a lender requesting information is in a much stronger position than a borrower who is sending information unsolicited.

At my firm, we call these summaries "Deal Point Memos" and every deal, whether half-a-million or half-a-billion, is reduced to 1 page that contains all of the truly relevant information in simple and concise language. (This 1 page summary is designed to be used concurrently with your first contact with a lender and should not be confused with a full "Executive Summary" that includes many details and can be as-many-as 15 pages long.)

Below are the essential elements of an effective deal summary. These are the key elements a lender will consider when deciding whether-or-not to pursue a loan.

Description of Collateral Property

State the location of the property and the property type (land, office, multi-family etc.).
Include 1 sentence on why the location is favorable. Briefly describe the property's age, condition, and size in square feet. Mention the zoning and note whether the property is vacant, under-performing or producing sufficient cash flow. Definitely state the value of the property and how that value was derived.

Specific Loan Request & General Use of Funds

Most lenders have minimums and maximums so be sure to let them know exactly how much financing you are seeking. Is this to be a short term "bridge" type loan or are you looking for permanent financing? Tell them the loan term you want in months. They will want to know what their funds will be used for, and it will help if mention that the money will be going back into the property, so include a general use of funds statement. But remember, this is not the place for a detailed budget or pro-forma. If you are acquiring an asset you will need to state the exact purchase price.

Hard & Soft Equity

Hard equity is cash that the borrower has already put into the property or has available to make the deal work. A down-payment is hard equity, site improvements and engineering and other costs will also be credited to a borrower as cash-in-the-deal. Lenders shun sponsors who don't have a substantial cash commitment to a project, so if you have skin-in-the-game, highlight it. Soft equity is, of course, the value of the property over and above the debt against it, the more the better.

Debt Service and Exit Strategy

It is paramount that a borrower demonstrates that they have the ability to make mortgage payments on-time and to pay the loan back at maturity. Illustrate your ability to make payments and clearly state how you intend to meet any pay-off or balloon payment.

Quick Sales Pitch

In 3 or 4 sentences tell them why they should love your deal as-much-as you do.

E-mail your 1 page summary to a decision maker (never fax, never mail unless requested) as an attachment along with the most flattering digital photo of the property you can take. Make sure they know how and when to contact you. If you don't' hear from them in 16 business hours follow-up with a polite phone call.

This method of approach will generate responses from interested lenders as-well-as denials from lenders who can't help you. Those who are interested will request more information and if the deal fits with their criteria they will issue a term sheet. The key is to get them calling you, pique their interest first and then sell them the deal when you get them on the phone. Before you know it you'll be sitting at the closing table.


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