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Brokering commercial deals can be a lot more complex than their residential equivalents. So how do you streamline the process to ensure your application is approved?
While residential applications are lodged electronically, and assessed according to fixed parameters, commercial deals tend to be manual, bespoke and dealt with on a case by case basis.
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Documentation
Commercial applications require a lot of documentation — business financials, business and personal tax returns spanning at least two years, transaction statements, tax portals and lease and asset finance details.
Far from being onerous, use this process to check the commitment of the client to the deal. It can be a complex process, so if they are reticent in providing the information, consider whether it’s worth your time to continue brokering the deal.
Streamlining tip: Prior to submitting a formal application, consider creating an initial discussion paper, containing a synopsis of the deal, to get the lender’s feedback. Many lenders will accept this approach, and provide a written expression of interest so you know you’re on the right track.
Structure of entity
In residential mortgages, you are dealing solely with individual borrowers. As a commercial broker you could also find yourself dealing with trusts, partnerships or companies.
Streamlining tip: If you’re in unfamiliar territory, talk to your clients’ accountant and get their input on the business structure you’re dealing with. If relevant, do a company search or get a copy of the trust deed early on in the process so you are prepared prior to lodgement.
The financials
Residential applications require minimal financial analysis compared to the depth of information needed for commercial borrowing.
However, there’s no ‘one size fits all’ approach as to what financial information is required, as it all depends on the level of risk attached to the purchase.
Streamlining tip: If you’re inexperienced, focus on the P&L statements and the add-backs initially, and consult with your BDM for any additional requirements. You don’t want to miss important information, but you don’t want to invest time in unnecessary analysis either.
Security
When buying commercial property, there are a range of security options available. In addition to R1M property (applicable to both residential and commercial investments), the bank can also consider Personal Guarantees, Guarantee of Associated Entities, and General Security Agreements (GSA).
GSAs are appealing to banks as they offer greater security (via control over all your present and future assets). However, many borrowers aren’t comfortable with this kind of charge as they feel it’s superfluous.
Streamlining tip: It’s important to say if your client does not want to hand over a GSA, so that it isn’t taken automatically. Obtain clear instructions from your client, and ensure your application is strong to reduce the need for a GSA as collateral. You’ll need to justify the client’s request and mitigate the risks associated with not taking the GSA.
As there is so much leeway in the commercial process, you need to be able to assess the weaknesses in any application and know how to mitigate these risks. Ultimately, the success of an application depends on its strengths so invest time early on in ensuring you have a solid application to put forward.
