Commercial Lenders - Finding the right lender who will fund your deal

Mortgage brokers call me asking for help in finding a lender for their commercial mortgage deals, and I ask every broker the same thing: "which type of lender are you looking for? Conduit, Bank, S&L, Credit, Life, Subprime, or Hardmoney?" Each one of these lenders has a different tolerance for financing risk and will not respond to you unless you present your calculations for the financing risk in your loan request.

For example, conduits look for deals that can pass a Rating Agency review, credit companies have different loan programs based on the level of risk, local banks tend to look for personal guarantees to mitigate risk, life companies provide the best rates for the least amount of risk, and subprime and hardmoney lenders charge clients based on the level of risk.

As the broker, you can calculate the financing risk of the property you are representing by using two years of historical income to calculate the Stabilized Net Cash Flow (NCF). Understanding how your derived at the stabilized NCF is the most important aspect to a lender because it is used to support the proposed loan, the LTV and the DSCR. After making these calculations, you can understand the risk of various financing scenarios.

To start, you need to estimate the value of the property. In a commercial mortgage transaction, the lender generally orders the appraisal, not the broker, but you still need to understand the value of the property to make the calculations. You can estimate the value by NCF divided by cap rate. Cap rate is the rate of return that a property is generating (or expected to generate). Cap Rate is considered one of the risk measurements. LTV and DSCR also determine risk. If a lender will fund up to a maximum 80% LTV and a minimum 1.25 DSCR, that means that any loan request that meets the maximum LTV and minimum DSCR would be at that lenders maximum acceptable risk. If you can underwrite to a lower LTV and a higher DSCR for the same property, then you will be decreasing the financing risk, making the loan more attractive to the lender.