16 Unit Multifamily Refinance

Location: West Hollywood, CA
Loan Amount: $1,880,000
LTV: 80%
Rate: 4.63% Fixed for 10 years
Terms: 10 Year Fixed, 30 Year Amortization

Closed Deals

Investment Office Building Refinance

Location: San Clemente, CA
Loan Amount: $1,650,000
LTV: 50%
Terms: 5 Year Fixed Conventional Loan

"Chad has been great to work with in seeking financing for several of my commercial buildings.  He has made preparing the application less arduous, helping to get the necessary documents together in a simple straight forward manner.  He found us a number of competitive lending sources."

Bill Gregory - Real Estate Investor

Good Credit and Credit History

I tell my clients that besides your family and friends, there is not much more important than good credit. Most people do not have enough cash on hand to purchase a commercial building, multifamily building, a home, a college education or even an automobile. If you are like most people then you need to be able to sell yourself as a good credit risk.

Let’s put ourselves in the shoes of the lender for a minute. If we have $1,000,000 to lend and there are three candidates who are each seeking a $1,000,000 loan from us, how would be go about deciding who to lend the money to? Our main purpose in lending money is to charge interest on the principal amount of the loan and to make sure our loan is paid back in full.

As we take a look at the three potential borrowers we see that borrower number 1 has bad credit. Their credit score is low due to a few collections and charge-offs and they show a history of years of late payments. Borrower number 2 doesn’t really have bad credit; in fact, they do not have any credit. How am I to know if they are going to repay me? They don’t have a history so I would be one of their first creditors. Do I want to take that risk? Borrower number 3 has a good credit score. It could be higher, but they have a really good history of making all of their payments on time and we can see that they have paid many prior creditors in full with no problems.

As a lender who would you lend to? It may seem like an exaggerated example, but lenders deal with these exact scenarios every day. Many banks have benchmarks or lending limits on the amount they will lend in any given quarter or year. They are looking for good credit risks; borrowers who have a good credit score and a strong credit history.

So how can we prepare ourselves to be good credit risks? Are there a few things we can do to increase our credit scores and improve our credit history? Yes! Here are a few general tips to get started. You can contact your personal financial planner for more ideas once you have taken these steps:

• Check your credit for mistakes. Upon careful examination of your credit report, it is not uncommon to find mistakes on your credit report. To remove them you will typically need to contact the credit bureau in writing, show proof of the mistake and then they can usually remove it from your credit report. This is one way to monitor your credit regularly 
•  If you have prior late payments, charge-offs, foreclosures, etc. make sure each of them are taken care of and finalized. Try calling the three bureaus to get old derogatory items removed. Some items have to be there for a certain period of time, but many times there are some items that can be removed 
• Decrease your credit balance to credit limit ratio. There are two ways to do this. You can either pay down some of your debt or request an increase in your lending limits. If my credit balance is $500 and my credit limit is $600, I am utilizing approximately 83% of my lending capacity. However, if my credit balance is $500 and I am able to raise my credit limit to $1,000 I have now dropped my ratio to 50% and I should see my credit score increase. NOTE: If you do raise your credit limit you will need to have the self-control to not charge up more on your credit. This would defeat the purpose 
• New credit accounts decrease your credit score because there is not a long credit history. Do not keep opening new accounts. Find a couple or a few that work for you and build a long-term credit relationship. Use them and pay them off. This will help build good credit

Personal Liquidity

Many borrowers do not consider their personal liquidity when seeking financing. With everything that has happened in the real estate market, this could be one mistake that could cost you an approval on your loan.

In order to meet the liquidity requirements lets define what lenders are calling personal liquidity. Most lenders will call anything that can be converted into cash within 3 days as liquid; however, they will pay most attention to verifiable cash on hand and in the bank, stocks/bonds, and other marketable securities. Automobiles, boats, jewelry, etc… is not considered liquid.

If you are considering obtaining financing, it may be worth it to liquidate some other assets that aren’t as liquid and put the cash in the bank. While underwriting guidelines will vary from lender to lender, many lenders want to see the borrower’s personal liquidity at approximately 10% of the loan amount or 12 months of debt service reserves. I have seen lenders approve a loan with as little as 3 months debt service reserves, but those cases are few and far between.

Something else you will want to pay close attention to is pre-funding vs. post-funding liquidity. A sources and uses statement can help you determine what this will be, but it is exactly how it sounds. Pre-funding liquidity is liquid assets in your account before you pay the down payment and loan fees, etc. Post-funding liquidity are your liquid assets after you have made these cash expenditures. Lenders are primarily looking at your post-funding liquidity to confirm that you have adequate liquid assets in case of a downturn in your business or a tenant stops paying rent or vacates.

Many borrowers do not give proper consideration to personal liquidity and I have seen many loans declined solely on the basis of inadequate personal liquidity. If you are low on liquid assets and need commercial financing, it would be wise to consider liquidating some other assets or possibly even borrowing money from family. If you decide to do the later, you will need to know that banks and lenders frown on this. They will collect bank statements and if they see two months with low cash reserves and then a jump in the most recent bank statement, many times they will not count the increase. If you have had the cash in your accounts for 3 months or longer, many lenders will accept it because they are not seeing the large fluctuations in cash.

Personal liquidity is just as important to a lender as net worth. If you take time to get your personal liquidity in order, you will find a smoother and quicker approval process and the lender will not come back looking for more information to prove you are a good credit risk.

Net Worth

One of the first documents that any lender will want to see is a Personal Financial Statement (PFS) on the borrower. While this form gives the lender some very important information it is rarely filled out correctly and can drastically decrease a borrower’s chances of getting a loan approved. Many borrowers think that as long as they have a number for total assets, total liabilities, and net worth then the lender has everything they need.

The truth is that the lender is more interested in the details behind those numbers. Borrowers tend to overestimate their assets and underestimate their liabilities. This gives the lender a net worth that is erroneous and useless. When submitting a personal financial statement, all borrowers should also submit supporting documentation. This serves a two-fold purpose. First and most importantly, it shows the lender that the borrower is serious about the loan request and understands what the lender is asking them. If the loan officer you are working with can show all of this information up front to their Chief Lending Officer or CFO, they are more likely to get more interest in the loan request and more likely to get an approval on the loan.

Make sure you fill out your PFS completely and accurately. Take time to look at your bank statements and print them out for the lender. They will typically want to see 3 months of bank statement from all of your accounts to verify the cash on hand that you listed on your PFS as assets. Print out your stock certificate or summary of stocks and any other assets that you list. You will also want to print out and have copies of your liabilities such as mortgages, auto loans, credit cards, etc…

The goal is to be as transparent as possible. Do not try to hide anything, it only delays the process and destroys any trust that the lender is trying to build. They are looking for a good credit risk. Do not give them any reason to doubt you and your loan request. A good broker is very helpful in this process and can help package the information for the lender so that it is clear and easily understood.

Featured Financing Programs!

 
Conventional Financing

• 3 year fixed rate at 3.90%
• 15 year fixed rate at 4.95%

SBA 504

• 20 year fixed 1st TD at 5.75%, 20 year fixed 2nd TD at 5.51%
• 10 year fixed rate 1st TD at 4.80%, 20 year fixed 2nd TD at 5.51%

SBA 7a

• Rates start at 4.75% 
• Fixed rates available!

Closed Deals

Owner Occupied Light Industrial Purchase

Location: Rancho Santa Margarita, CA
Loan Amount: $713,000
LTV: 80%
Terms: 15 Year Fixed Conventional Loan

"We just closed escrow for an industrial condo by using Chad’s service. All he quoted at very beginning is what we got on the loan. We will recommend his service. "

David Dai - Vice President, Pacific PAC Technologies, Inc.