Hearing what your client is really saying during the application stage is crucial to funding

As published in Scotsman Guide’s Commercial Edition, November 2008

For commercial mortgage brokers, listening is a vital skill. When considering a business deal, brokers should interview their clients directly during the application process.

In this phase, listening carefully is important while gathering information about what a client has done in the past to secure funding for a particular deal.

Listening to answers about past efforts to secure funding is important for two reasons. First, brokers can use this information to determine the best loan type to secure. Second, clients may not be completely honest when answering this question.

Because the first information borrowers provide might only be brushstrokes of the real answer, brokers must be on their toes to spot any discrepancies.

The fact that borrowers are talking to a broker may be a clue that they have tried other routes to secure funding for their commercial deals. It makes sense for a client to first visit a banking partner to fund a new business deal. Why would clients be willing to pay a brokerage fee if they haven’t explored fee-free options?

By really listening to clients’ answers, brokers can start piecing together the previous-attempts-at-funding puzzle.

The confession

Brokers should consider that the information borrowers initially provided about funding efforts have been embellished. Good brokers rely on a combination of what they hear and what their gut tells them to determine when clients are telling the truth. Brokers should push for more data if they feel that accurate information is not being provided.

One way to approach borrowers is to ask them what about the deal would make a lender reluctant to provide financing. Because there are downsides to every deal, borrowers should be able to provide some thoughts. If they cannot, continue to ask questions.

For example, ask them how much experience they have with similar projects. If they have limited or no experience, it could be a red flag that they have been turned down for funding based on a lack of expertise.

Other indicators

Brokers can read between the lines to root out additional information that borrowers might not share directly.

For instance, the type of deal being presented is a means to access additional information. If the deal is a refinance of an existing project, ask if there is a current loan on the property and what its status is. Answers to these questions will help a broker determine why the borrower is not asking for funds from the existing lender, or if the loan is delinquent.

New projects leave the door open for brokers to discover vast amounts of information. For example, if the borrower is requesting funds to build a new housing development, the broker might want to ask if comparable homes in the area are selling well or if there are unsold units. The answers to these questions can determine the viability of the concept.

The broker also should discuss the borrower’s credit history. Ask if the borrower has ever had any litigation, bankruptcy or foreclosures, and encourage the client to share this information openly and truthfully. If one of these things has occurred, there might be explanations that would allow a deal to still proceed.

The result

Feeling comfortable that a client is being honest about past attempts to secure funding is critically important. Many clients don’t realize that small cover-ups will come out during the underwriting process or that a less-than-truthful answer can complicate the deal or even deem it invalid.

Brokers should listen carefully to a client’s answers and be at ease asking further questions. By doing these things, commercial brokers can determine if their clients’ deals make sense.