FEATURE ARTICLE, MAY 2005

GROW YOUR BUSINESS WITH SMALL-BALANCE LOANS
Joanna Schwartz

Schwartz

Small-Balance Loans can Expand Client Base and Increase Revenue

Defined as loans ranging from $100,000 to $1 million, the small-balance commercial space is quickly becoming a hot new area for mortgage brokers and real estate investors. Industry experts consider the market to be underserved by traditional lenders, and income-producing property is a growing consumer investment vehicle due to economic factors. Borrowers new to commercial real estate are likely to start in the small-balance category, and by serving this niche market with the right lending partner, brokers stand to profit.

Why would a commercial mortgage broker want to seek out small-balance deals? Until recently, it may not have seemed worthwhile considering the complexity of the process and the time involved in comparison to the loan size. But with new programs in the marketplace offering a streamlined process — more like that of a residential loan — brokers are finding that small-balance lending can be a productive and profitable use of their time.

Innovative Programs are the Key

In order to add successfully the small-balance niche to one’s portfolio, a broker must close these types of deals efficiently, and should therefore favor programs that deliver an easy process and a quick execution. Commercial lenders poised to thrive in the small-balance space have adapted to market needs such as borrowers who want a streamlined process and brokers who want a lucrative stream of business. An innovative lending program that provides an alternative to typical commercial underwriting is one way to accomplish both. For example, through underwriting focused on credit score and personal financial strength rather than property cash flow, a strong borrower can obtain a favorable loan, and the accelerated residential process makes the loan more profitable for the broker. The key to the small-balance commercial loan niche is the more hassle-free the program, the more successful the broker.

Training and support also play a role in efficiency. Online forms and applications, as well as quality of training and customer service, should not be overlooked when evaluating a program. Preferred pricing also may be an option with some programs. 

Small-balance commercial loans are most commonly used for the purchase of owner-occupied or investor properties such as multifamily, mixed-use, retail, office and warehouse locations. Typically, the loan purpose is a rate/term refinance, cash-out refinance or purchase. Loan-to-value, rates/rate locks, closing costs, prepayment fees and other details tend to vary by program and loan type.

How to Find the Business

For those brokers that embrace the small-balance commercial space, the best lenders will offer marketing support and materials to help source business. A lending partner that provides private-label marketing tools will further assist brokers in establishing a solid presence with customers and prospects.

Get a Jump on the Competition

With streamlined programs available in the marketplace, many residential mortgage brokers already have found success in growing their business by adding small-balance commercial loans to their portfolios. Commercial brokers should have no problem doing the same, and would be smart to take advantage of marketplace trends while small-balance is still an emerging niche.

Joanna Schwartz is managing director at Silver Hill Financial, LLC, a Miami, Florida-based nationwide commercial real estate lender that offers financing to borrowers through a nationwide network of mortgage brokers and correspondents.

©2005 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.