How soon do you want your loan declined?
By Steve Mariani
What is your time really worth?
Based on our experience working with hundreds of brokers throughout the country we’ve uncovered some very interesting information that may help you increase profits moving forward. What we’ve found after all the conversations we’ve conducted on this topic is that most brokers are spending 30% to 40% of their time (on a single deal) securing the financing or assisting the buyer in securing the financing. We were extremely surprised as the feedback began coming in. Most brokers we spoke with had an average deal size of between 250M and 1.2MM and found more concerns and time spent hand holding their lender through the entire process.
If you have been following my previous writings then you should have a good idea of my motivation and drive for my writings, assist intermediaries nationwide in closing more transactions. That being said, I don’t want this writing to appear “more self-serving” then it actually is. Please read the following with this in mind. This information is based on the current nationwide volume increases being experienced by brokers and the feedback provided by them during 2016 and early 2017.
So let’s get back to the question, how soon would you like your decline? Only acceptable answer: As Soon As Possible. Today would be great.
What we found over our 22 years is that once a lender begins down a negative road on a transaction then turning them around becomes a big battle which rarely turns out positive but always takes too much time. We don’t do this anymore and have learned that replacing that lender is a much better use of our time. The difference here is we do have the ability to demand a quick screening of any deal with our preferred lenders based on our higher volume levels.
Again, what is the actual cost of time in your office? I could never begin to guess but what I can suggest is that it may be worth your time to explore and evaluate your true cost of time spent with lenders on a per deal basis.
With all the lending options available to you these days, I’m sure picking the right lender for the right deal sometimes becomes a challenge. Most times you probably find the most appropriate one quickly, say within a week or so. If all goes well you’ll provide answers to initial underwriting questions and then in more detail as the loan request moves through the system. Eventually you secure an approval and move to close, which you also should stay involved in as this cannot be left to the buyer without guidance.
The concern comes when the lender requires more and more information showing no true level of interest, just trying to fit this transaction into their specific “lender guidelines”. Now your 2 or 3 weeks (I’m being conservative here as many times it’s 5 and 6 weeks) into the financing aspect of the transaction but a concern of one type or another pops 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 a many weeks into the LOI and the seller begins 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.
Beginning the financing over from the get go can be a deal killer as we all are aware, time kills deals. One way that we’ve found to conserve time is to include in your offer (or LOI) a 30 day clause to secure a full financing approval. Once a borrower exceeds this initial 30 days then your seller knows the business is back on the market and should this buyer then be approved, he is back in the transaction. No time is wasted and the seller has only removed his business from the market for 30 days. Should this buyer be able to secure a loan commitment within the 30 days, the transaction moves toward closing.
The alternative that we see too often is the offer to purchase includes a 90 day to close window and hence removes the business for sale the entire time. That’s 3 months this potential buyer has to close with no specific mention of him proving his funding is in place. We have always encouraged the 30 day clause as it respects the seller’s time and is enough for a true lender to do a proper job on underwriting.
Here’s the bottom line. Hold your lenders to a set timeframe, be it a day, week or more but have them commit to providing an answer by a predetermined date. No exceptions. This allows you to allocate your time as appropriate.
Diamond Financial Services is the largest privately owned non- bank SBA acquisition loan generator in the country. We guarantee a yes or no answer within 3 days and enjoy a 94% closure rate on our transactions. Ask the lenders you work with what their numbers are.
AskDiamond@easysba.com is always available for specific questions regarding all SBA rules.