After a call with a lender, we learn that they have an interest in considering the loan request, or decide to pass on the opportunity. Typically, a lender passes on a transaction due to their internal considerations: they no longer consider gas stations, hotels, home-based, or whatever underwriting criteria they must conform to. Passing on a transaction is not a decline, and we accept that with no concern. We understand every request is not for every SBA lender. That said, if they do pass on the loan, it needs to be within the first day of file release as we must answer to all the parties involved. Still acceptable and usually business practices to this point.
Once we receive a green light from a lender, and they issue a term sheet for the transaction, we now consider them committed and hold them responsible from that day forward. It should also be mentioned that we do not accept term sheets from development officers or salespeople UNLESS it has been fully vetted with whoever needs to ultimately sign off on the approval. Handing us a term sheet produced and solely reviewed by the development officer or salesperson is not acceptable here. Once our buyer and seller agree to the terms this lender has outlined, we move into credit, and are expecting an approval and nothing less. Most times we get it.
Once it is in underwriting, and supported by all who have reviewed it, the deal may go to “committee” for final approval. Committee is where the loan request may be put in jeopardy. Depending on how many executives make up that committee, personalities and past experiences can stand in the way of the approval. As an example, one high volume lender we use had a committee member change and the committee was comprised of only four people. The newer member came over from the conventional loan side and is extremely conservative, hence our recent decline. This member did not like or support the industry we presented, and actually convinced other members of the committee to side with him. Our previous relationship and volume levels seemed not matter to him at all and he stood on his decline. At this point, we are now six weeks into the process and switching lenders puts our deal at risk on many levels. We must turn this around quickly and bring in another lender, or explain why this transaction is not happening at all. We all know that time kills deals, and so do lenders if not controlled properly and have expectations set accordingly.
Based on our experience working with brokers throughout the country, we have uncovered some interesting information that may help you increase your profits moving forward. What we have found after conversations we have conducted on this topic is that most brokers are spending 30-40% of their time securing financing or assisting the buyer in securing the financing. We were extremely surprised at this revelation. Most brokers we spoke with had an average deal size of between $250,000 – $1,200,000 and found more concerns with time spent hand holding their lender through the entire process.
What we found over our 22 years in business is that once a lender starts heading down a negative road (during initial screening) on a transaction, turning them around becomes a battle which rarely turns out positive and always takes too much time. We do not do this anymore, and have learned that replacing a lender quickly is a better use of our time. The difference here is that we have the ability to demand a quick screening of any deal with our preferred lenders based on our relationships, and this saves time.
The concern comes when the lender requires more and more information while showing no true level of interest, just trying to fit this transaction into their new specific “lender guidelines”. Now your two or three weeks (I’m being conservative here as many times it’s five or six weeks) into the financing aspect of the transaction, but a concern of one type or another keeps popping up, be it a license, a landlord, the buyers resume’, or just a numbers concern from the lender or (and I bite my tongue here) a flat out decline. Now we must start the process over but are many weeks into the letter of intent and the seller starts to be concerned. Adding to the list of time wasters, calming down the seller and keeping him on board with the transaction is another full time job that we understand. Your compensation is lowered yet again with each decline as your investment of time increases yet again.
Here’s the bottom line. Hold your lenders to a set time frame, be it a day, week, or more, but have them commit to providing an answer by a predetermined date. No exceptions!