Private lenders are being inundated with requests -- make your deal stand out

John K. Kutac, senior business development officer, Western Capital Partners

As published in Scotsman Guide's Commercial Edition, November 2007.

We all know the market has changed and the credit crunch is wreaking havoc on the lending business. We are not only seeing much tighter lending guidelines, but we also are seeing large lending firms go out of business altogether.

One funding source that remains reliable is private lenders. These lenders see this period as a time of opportunity for borrowers who wish to capitalize on the distressed nature of the marketplace. But this leads to another problem. Because there are fewer lending options, those lenders that remain active are being inundated with requests -- not only deals that would typically go the private route but also deals that had bank approval that died.

This heightened competition means that it is especially important to give your deal the best chance possible in your initial presentation to the lender. Whether it is fair or not, a quality deal may be given low priority with a lender if it's not conveyed effectively at the onset. It is your responsibility to represent your clients' transaction in the most effective manner to give it the best opportunity for funding.

Shift your mentality away from getting basic deal information out to as many sources as possible. Instead, focus on understanding what makes your borrowers' project a good deal. Know the ins and outs of the project, and deliver that information in a clear and compelling fashion.

Concentrate your efforts on the following points when first presenting a deal to a potential lender. While they don't encompass all the issues, they should ensure that your project is received well and given the appropriate attention.

Show, don't tell

Your borrowers often will answer your questions about the property's background with, "I don't know." It's your responsibility, therefore, to dig up the past history of a project and then include this information in the loan application.

Lenders want to understand the original purchase price, corresponding debt and equity within that transaction, and what's been done to the property -- whether it is physical improvements, advancement in entitlements or the like.

Further, brokers typically have a valuation figure on the property, but rarely can they convey the method used to reach that figure and how it is impacted by today's market. Knowing how a value was reached and why it makes sense with existing market conditions is powerful.

Appraisals can be useful and provide wide-ranging information, but they can be subjective at times. They take selective comparable information to achieve certain valuation levels. Use them as a guide only.

In addition, there often is an inherent flaw with appraisal reports. The information they contain is from the past. That can be adequate in most markets, but it can be dangerous when the cycle is trending downward. Most lenders will determine their own market values and reach a loan to value from that figure, not from the appraised value.

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