If you want to better your chances of securing an approval and closing your deal, bring these things to the table.

Cash = Commitment

100% financing is extinct. Some borrower cash in the deal is now a strict requirement of all legitimate lenders, including private and “hard money” lenders. From a lenders perspective, the bigger the borrower down-payment the better, but, if there is enough equity in a building or project, lenders will work with as little as 10% down. They might build in a mezzanine facility or structure in some preferred equity, but, quality deals can get done with small amounts of borrower cash. That-being-said, don’t ask for 100% financing. Lenders today are looking for commitment and nothing represents commitment like cash in the deal. (Note: If a lender, or broker tells you they offer 100% financing, beware, chances are good that, in-the-end they won’t be able to fund and you’ll lose your deposit and due diligence money.)

Credibility

Lenders are looking for credibility. Now is not the time to ask a lender to fund your experiment. Don’t try to buy your first hotel during a credit crisis. Finance companies will ask about your experience in the hospitality industry and will be nervous if you lack a track record in the industry. The same goes for retail, office and industrial. Now is the time to go with what you know or partner up with an investor with experience in a particular industry you’re trying to break into. Trust me; lenders are going with what they know and they know first-timers are high risk.

Credit

You don’t have to have perfect credit to get approved for a commercial loan, but your credit report better not portray as a dead-beat either. If you are credit score challenged, be prepared to be able to mitigate that negative factor with either a co-signer, a larger down payment or cross collateralization of other real estate you own. Lenders don’t know you personally but they know precisely how many times you’ve been 15 or more days late on all of your mortgages and all of credit card payments. They look at your credit report as a report on your financial character. This may not always be fair, but to be fair to lenders, it’s really all they have to go on.

Equity

Equity is protection to a lender. If you can show equity in a building or a tract of land lenders will feel more secure and will be more likely to place the money in the escrow account and schedule a closing date. There are simple ways to increase a lenders protective equity (I said simple, not easy). The most obvious is to make a bigger down-payment; another is to ask the seller to carry-back some portion of the debt. One effective method to also consider is to increase the value of a property by taking steps to getting it fully entitled. Sometimes some simple engineering can drastically increase the value of a project. A change in zoning has been known to double real estate values and can often be accomplished simply by petitioning the local zoning authority. Inexpensive site work may also have a dramatic effect on how a bank views a property and they will definitely appreciate your spending money on the deal.

We are facing challenges today in the credit arena, but deals are still getting done, buildings are being bought and developments are still moving forward. If you want your deal to be one of the ones that gets funding take steps to show the lenders what they want to see.

MasterPlan Capital LLC – Financing for all types of Commercial Real Estate – Purchase / Refinance / Development – Simple (1 page) Application Online at: www.masterplancapital.com Quick Answers – Fast Closings – Commercial Mortgage Loans From $1MM – Equity Financing / Joint Ventures From $10MM

Glenn Fydenkevez is a former officer at one of Wall Streets biggest investment houses. His company, MasterPlan Capital, is involved, nationwide, in the financing of and investment in commercial real estate. E-mail him at glenn.fydenkevez@masterplancapital.com

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As of February 20th, 2007, the maximum amount for this “conforming” loan is $417,000 for a single unit property, $533,850 for a 2-unit property, $645,300 for a 3-unit property and $801,950 for a 4-unit property. The conventional limit for second loans is $208,500 and all loan limits are 50% higher for properties in Alaska, Hawaii, Guam, and the U.S. Virgin Islands. These limits change periodically with the real estate market.

Most lenders are willing to lend over and above these conforming amounts, but the larger jumbo loan amount translates into a larger risk for the lender should you default on the loan. Simply stated, the more the bank lends, the more it stands to lose if something goes wrong and they need to foreclose on that property.

Because the lender is taking an increase in risk with the size of the loan, they will typically charge a higher interest rate than they would on a loan that is within the “conventional” loan limits. All lenders vary in the premium they add for jumbo loans, but a good rule of thumb is to expect to pay an interest rate about 0.5% higher than you would for an otherwise identical conforming loan.

With conventional lenders, these jumbo loan amounts are set in stone, particularly if they are backed by Fannie Mae or Freddie Mac. In other words, a mortgage for $417,000 from one lender at 6% will almost always be about 6.5% for a loan of $417,001 from the same lender.

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