Why Brokers Need 3 Options for CRE Financing

Savvy intermediaries are able to offer clients relationships and quotes from these critical funding sources, according to the COO of Harvest Business Finance and Harvest Commercial Capital.
Adam Seery  Image courtesy of Harvest Small Business Finance

We’ve all heard the phrase “I’ve got an Ace up my sleeve.” Usually, it indicates a last-ditch effort to get something done. Experienced brokers usually have a lot of aces up their sleeves, and one of those aces should be a diverse list of lenders.

The more options you have in your back pocket for financing, the better chance your deal gets done. A savvy broker has a mix of banks and finance companies on speed dial. Below, I’ve identified three funding sources every broker needs to effectively serve clients:

National Banks

Let’s call these the “big banks” ($100 billion to $2.6 trillion in assets). As the regulatory environment continues to tighten for banks, it’s harder to secure good deals financed by the “big banks.” They use a one-size-fits-all approach to lending. They don’t rush to underwrite, fund and service a loan. The value they provide to borrowers is low rates, period.

If your client can tolerate an escrow longer than 60 days, and you’re dealing with top tier client, this is the route to take.

One tip, though: When looking for the right bank sales representative for your client, make sure he or she has been with the bank for an extended period of time. Those individuals know how to work deals through the system. National banks tend to experience high turnover, and the last thing you want is a new sales rep adding additional time and energy to an already slow process.

Regional & Community Banks

Let’s call these the “relationship players” ($1 billion-$99 billion in assets). These small to mid-size banks are nimbler than the “big boys” but typically offer higher interest rates and have limited capacity when it comes to loan size. For the most part, these banks market themselves as “relationship” driven. This means they are looking to lend you money but want you to bring over deposits, lines of credit and any future business.

Be aware that the smaller the bank, the more likely it is to be acquired by a regional (up to $20 billion) or super-regional ($100 billion) bank. Once that happens, all bets are off in terms of the bank’s historical credit culture or pricing. Again, call these banks to identify a top producer. You will want to work with that individual.

Finance Companies

Let’s call these the “get it done folks.” Lastly, the finance lending space is comprised of non-bank lenders backed by private equity funds. The advantage of these lenders is speed and credit flexibility. Since these firms are not classified as an FDIC deposit institution (bank), they are strictly transaction driven and focus just on funding the commercial real estate loan request.

These lenders can save the day, along with your commission, if your client is turned down by the “big banks” or “relationship players.” A majority of these sales professionals are former commercial real estate bankers who wanted to work under less-restrictive terms and be able to say yes more often.

The downside to finance lenders is they typically have higher costs of funds, which in turn flows to higher interest rates. Again, once you identify a reputable company, find that individual who knows your market well and has a workhorse reputation.

Nearly all of a broker’s clients will be able to find a financing option for a solid investment. The key to success is cultivating relationships with those three diverse funding sources to ensure your transaction gets to the finish line.

Adam Seery is the COO of Harvest Small Business Finance and Harvest Commercial Capital.