The Right Way To Get Commercial Loans FinancingAuthor: Karen Benjamin
A lesson learned. Our company was recently asked to see what options were available to a commercial property development project that was now a multi-million dollar foreclosure. The client`s family were desperate. Many of them had invested in the doomed project. There really is no need to explain the details of the situation that the client was in, other than highlight some of our KEY findings that in turn made it impossible for us to help these individuals get out of the foreclosure. Project Management Lenders like to see Project Managers (PM) involved in a commercial project that have experience as a PM. It adds credibility to the project and reduces lender risk. More importantly the PM must have experience in the field to which he / she has been asked to manage. In the example I am referring to, the self appointed PM had no business being in the PM position. This inexperience was a major contributor to the demise of the project on many levels. The Project Plan A project plan must be realistic. Remember, lenders see land development type projects ALL the time. If the project is too aggressive, budgets are not reasonable or the overall plan is not properly complied the lender will not give the project the consideration it may deserve. Working with a Mortgage Broker can give the PM some insight as to what project phases should come before others in order to encourage lenders to invest in the project. Not all lenders will want to finance every phase of a large project and for these types of project, different lenders may be used for each phase of the project. The PM in my example was also a "bully" and was arrogant enough to question other certified professionals involved in collecting the necessary information required by the lender. This attitude resulted in many industry professionals refusing to deal with this client. The saying "it`s a small world" can be applied to many things and this project was no exception. As the years rolled by the reputation of the PM had made its rounds within the broker and lender community, making it impossible for us to find a financing solution. Financing Options As a Mortgage Broker, I can testify to the value of a licensed professional helping you with your financing requirements. Knowing which lender to contact and what that particular lender will require in order for them to approve financing are key assets which the Mortgage Broker can bring to the table. I would not recommend looking for financing yourself unless you have some experience in this field. Lenders Lenders want to see you succeed if they have invested in your project. Things do happen and things can go wrong but two of the very worst things you can do is 1. not talk to the lender about the problem you are faced with, and 2. destroy your relationship with the lender by not paying them and / or being belligerent with them. In these tough economic times, if you have a lender financing your project, treat them with respect and do everything you can to preserve that relationship. Documentation There are some key pieces of information required in order for any lender to determine if a project is viable. To name a few, this information would include: A Business Plan, Complete Financial information (including quotes, forecasts and Invoices), An appraisal, A Exit strategy, Owner Bios etc. Lack of documentation can ring alarm bells for lenders and create headaches for mortgage brokers, accountants and lawyers alike. In summary With reference to the project I am using as an example, this could have been a viable project if handled correctly from the beginning. Indeed, we had lenders who would finance such a project but it was made clear to us -NOT WITH THE CURRENT PM INVOLVED. In this case, the property was not the point of concern... the concern was the competency of the owners. So instead of them looking forward to owning a multi-million dollar asset, the client was faced with a multi-million dollar foreclosure. Do it right, get the necessary, SKILLED, help from the start in order for your project to be successful. Competent PM`s and Mortgage Brokers are best places to start.About the Author:
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