What Is a Commercial Mortgage Broker?
Whether you're buying an apartment building or renovating your office complex, getting the right financing for your business's real estate needs can save you thousands of dollars or more over the long run. Besides traditional banks that offer small business loans, business owners can now choose from several different commercial lenders, SBA lenders and alternative financing options that may offer distinct advantages for your situation – equity crowdfunding, for example. While it's always to your advantage to learn about the commercial mortgage process, you may have better results by hiring a commercial mortgage broker.
Commercial mortgage brokers very often get their business from referrals rather than online advertising, and quite a few of the brokers with websites that show up in searches are focused on real estate deals in the hundreds of millions. However, we turned to articles and professional listings to find brokers with a small business focus. In our lineup, we stuck with those that focus on securing loans from $100,000 to $100 million dollars. All of these have specific expectations and areas of focus. Edward Voccola & Company has offices across the U.S., while GCP Capital Group focuses on New York and the East Coast. The Rincon Group concentrates on multifamily properties while Pergolis Swartz, Inc. does more general real estate financing acquisition and can cover a variety of needs. A few, like Time Equities, Inc., also sell or lease real estate.
What Is a Commercial Mortgage Broker?
A commercial mortgage broker has expertise in the many financing options for real estate loans for business purposes. This can mean purchasing a small office building or a large medical facility, buying a multi-family home with the intention of renting, or even building a church or arts center. Brokers can also help you get financing for renovations, land or expansion.
Unlike mortgage bankers, brokers can foster relationships with a multitude of lenders and investors, and those relationships are not exclusive. Thus, they have more flexibility in finding options that traditional banks cannot provide. They also take you through the entire loan process, including making sure you have everything you need to pre-qualify, and sometimes remaining available after your loan closes to assist you with anything concerning your mortgage.
Commercial mortgage brokers may only work a certain region, although the ones in our lineup cover multiple states. There are also national and international firms, but these generally work higher-ticket deals and receive larger commissions.
Brokers work on commission, usually 0.5 percent to five percent of the price of the loan. While most handle the most common real estate financing situations, some specialize in specific industries or needs such as nonprofit organizations or commercial land and construction.
What Should You Expect From a Commercial Mortgage Broker?
In general, a mortgage broker takes you through the entire loan process from prequalification to closing. Before he or she starts shopping for your loan, the broker will review your paperwork and talk to you about your specific situations in order to figure out the right option for you. You'll also discuss your expectations for loan payments, closing costs, prepayment fees and other loan-related information.
If you are purchasing land or an existing building, brokers often bring in third parties to verify the condition of the property. This not only helps speed the qualification process but can also alert you to issues regarding the property you may not have known about.
Next, the broker seeks out your real estate financing options. Brokers should have relationships with more than one bank, and they often have expertise in other areas of business financing. In some cases, this could be a Small Business Administration Certified Development Company (SBA CDC) loan or alternative funding through a non-traditional lender such as investment companies or insurance firms. They do not settle with one deal, but bring you a list of options to choose from.
The broker then presents the best commercial mortgage options for you to consider. He or she answers any questions you have and review the details of the loan. The broker stays with you through the entire closing process, negotiating on your behalf.
Is a Commercial Mortgage Broker Right for You?
Brokers can be expensive and like all commission-based professions, they are looking to get as much profit as they can. After all, they're businesspeople, too. However, they can save you time, money and frustration, especially in these cases:
> You don't have time to shop different banks
> You are not familiar with the commercial loan process and don't know all the alternatives
> You want to see all the possible financing options but don't have the time or expertise to do the research yourself
> You have unique issues that make getting a loan more difficult
> You have already tried to secure a commercial mortgage on your own but weren't satisfied with the results
Commercial Mortgage Brokers: What Should You Look For?
While a commercial mortgage broker can save you time researching for a loan, it does not absolve you from doing your own homework. Finding a good broker is just as important as finding a good bank. Therefore, consider several agencies before making your final decision. Here are things the best commercial mortgage brokers have in common.
Look for brokers who have experience in the areas of finance, real estate and business. Most companies list at least the founder or top brokers on their websites. Also look for the kinds of deals they've closed:
> Does the broker specialize in your area of business and work in your region? Each type of commercial real estate has its own lending challenges. For example, if you have paying tenants you'll inherit with the property, they can, in some cases, be used as collateral.
> Are the closing amounts in the broker's ballpark? If they are too high, the company may not work small loans as readily because their brokers are used to higher commissions. If they are too low, the brokerage may not have as much experience with higher-ticket deals.
> What kind of education and continuing education do the brokers receive? Commercial real estate financing is not a stagnant industry, so these people need to keep abreast of the latest changes in laws as well as in new opportunities, both commercially or with government programs.
Area of Expertise
Most brokers don't specialize, but many have areas in which they do more deals and feel more comfortable. However, each loan is unique – what is needed to finance the refurbishment of a condominium complex varies from the requirements to build a medical facility. Ask what deals the brokerage has closed that resemble the needs for your specific business situation.
Also, be sure to ask if the broker has worked with businesses in your industry. This can be especially important for niche businesses or nonprofits, which can have different financing needs and may qualify for other programs.
In order to get the best options, your broker should have a thorough understanding of who you are and what you need. Ask about the screening process: what questions are asked, what documents you'll need. You also have a responsibility to be upfront about what you want in a loan, such as your expectations for closing costs, your ability to pay the loan early or any considerations that could hinder a loan. The more the broker knows, the better he or she can find the best financing for your business.
All brokers should assist you with the pre-qualification process, present you with research options, walk you through the proposals and liaise between you and the lender. Others services these agencies provide include inspecting the property you want to acquire, reviewing your financial documents and providing intermittent assistance after your loan has closed, such as reviewing financial documents the lender may require annually.
Commissions & Fees
As noted above, brokers make a living from commissions on the loans they make. Therefore, like any business, they seek to get the maximum commission they can for the services they render. The average runs between one and two percent of the total loan amount, although they can span anywhere between .5 percent and 5 percent. Some brokers may also have specific fees. The most common is a non-refundable processing fee. Brokers should not get paid until the loan closes. As with any big investment, it's a good idea to shop around and ask about rates and prices.
By law, mortgage brokers cannot charge hidden fees, tie their pay to your loan's interest rate or get paid for steering you to an affiliated business, such as a title company they have ties with. They cannot receive a commission by both you and the lender.
A good commercial mortgage broker can save you money in the long run, even with its commission fees. However, a bad one – or a bad deal with one – can cost you thousands. There are laws to help protect your rights, but taking the time to research brokers to make sure they are qualified and familiar with your area of business and have experience securing loans or alternate financing in cases similar to yours can help you find the best broker for you. Asking questions about the process and negotiating the broker's commission rate lets you enter the agreement with open eyes and might save you money.