Top Ten Tips for gaining commercial credit committee approval

Top Ten Tips for gaining commercial credit committee approval

Getting your client's commercial mortgage application approved by a credit committee can prove challenging as lenders' processes and criteria are often vastly different and gathering....



Getting your client’s commercial mortgage application approved by a credit committee can prove challenging as lenders' processes and criteria are often vastly different and gathering the information requested can seem overwhelming.


Talking us through the best way to get your commercial application approved, Rob Lankey - Managing Director at Aldermore Commercial Mortgages - gives us his top ten tips…

Tip 1: Make it your business to find out

If you want your client’s commercial mortgage application to sail through a credit committee, you need to make it your business to find out how a lender’s credit committee works, because every lender is different in the way in which is assesses and approves loan applications.

The first step is to find out how cases are processed: who handles the cases, what size of case they’re authorised to approve and what size of case is referred to credit committee. All it takes is a phone call and most lenders will be quite happy to share this information with you - it’s in their interests to do so.

Ask if there’s a critical loan size when the assessment process becomes more robust and when applications are referred to credit committee (again it will vary from lender to lender) and ensure you know the basic facts about how a lender’s credit committee operates. For example, do they meet once a week or more frequently; do they meet face-to-face or via teleconferencing or do they simply circulate a credit paper to key individuals for approval?

Also find out if and when a customer visit will take place before or after submission to credit committee and ask the same question about the valuation? Also confirm how much the whole process will cost your client?

This basic background information will enable you to gain a clear understanding of how your client’s application will be processed and will enable you to better manage their expectations.

Tip 2: Tell a story

If you’re submitting an application for a larger value loan, be prepared to provide the lender with a write-up about the case. Provide an overview of the application and describe what’s happening - it’s useful background information for the lender. Who are the borrowers, what does the business do, how long has it been trading, what issues is it facing? Most good commercial brokers will already have a good feel for the risks and can therefore help by being upfront and pointing these out.

Be honest. Lenders understand that in the midst of a recession a business’s books may not look quite as rosy as they once did. If there are any anomalies that need explaining, do so and tell the story.

You don’t need to write War and Peace; a half page at most is all that’s needed.

Tip 3: Corral your facts

Gather as much information as possible in support of an application. Lenders are understandably cautious in recessionary times and the more information you can provide, the clearer a picture they will be able to form of the merits of the application. The larger the loan application, the more supporting information a lender will expect to see. Do go digging if the information your client gives you appears to be incomplete; if it doesn’t make sense to you it won’t make sense to a lender.

Tip 4: Reveal your client’s other relationships

If the mortgage application is for an investment property, find out what’s happening with your client’s other banking relationships. Do they have outstanding loans with other lenders; if so, with which lenders, for how much and on what properties are the loans secured?

If your client is being forced to refinance by a bank that’s calling-in a facility, tell the lender. Lenders are well aware that some perfectly creditworthy companies are having a gun put to their heads by banks who are no longer interested in lending and it will not count against them if they’re being forced to refinance.

Tip 5: Understand the property

The property to be mortgaged is the lenders ultimate safety net and they will therefore want to understand every aspect of its use. That doesn’t mean simply having a valuer's report, it also means ensuring the property is in a good state of repair and is well located.

If you can and you’re in the area, jump in the car and go and see the property for yourself and take your camera with you. Take a look at its location on Google and do some internet research to find out about its locality and use.

Most importantly, use your common sense. If the property is boarded-up, in a poor state of repair and the market has passed the property by, why should a lender take it as a serious proposition?

Tip 6: Who are the tenants?

On commercial investment properties, find out who’s occupying the property today, as opposed to who may be named on the lease that was signed ten years ago. The property may have been sub-let and the lender will want to know who is in situ today, as well as who is on the hook as far as the original lease is concerned. Always get a tenancy schedule and have a look at it before sending it in – do a ‘sense check’.

Tip 7: How is the VAT going to be paid?

If the property is VAT registered, the amount of VAT payable on a transaction can make stamp duty pale into insignificance. On larger loans the sums can be considerable and lenders will want to know where the money is coming from to pay the VAT bill.

This is a basic anti-money laundering issue; lenders have to demonstrate that the money being used for deposits and to pay VAT bills is coming from legitimate sources. This is one of those issues that, if left to the last moment, can hold up deals and prevent them from completing on time, so it’s best to sort it out sooner rather than later.

Tip 8: Establish who else is involved in the deal

When loan applications involving larger sums are submitted on behalf of trading businesses, there is a reasonable chance that the business has a range of other finance facilities in place. You’ll need to find out who they’re with and what other lenders may have an interest in the transaction.

Tip 9: Use a liberal dose of common sense

When you first take a look at a deal, use copious amounts of common sense and ask yourself, does the deal feel right? For example, if it’s a mortgage application for a shop and the applicant has given you a copy of an old valuation with photographs showing poor trading conditions and low stock levels, does the applicant’s claim stack-up that the business is now thriving? Challenge why - is it in the wrong location or has it simply been badly managed?

Don’t overlook the obvious. I remember receiving a proposition where a large second hand car dealership was moving to new premises, but the premises had nowhere to park any cars! It may sound silly, but it happens. If your instincts tell you that something doesn’t feel right, then alarm bells will also ring with a lender. It may be that a bit of investigation provides a perfectly reasonable explanation for your concerns. Be prepared to do some investigating.

Tip 10: Think like a lender

When you’re preparing your client’s application for submission to a lender, ask yourself a key question: would you stake your own money on the deal? I know this might sound a bit old fashioned but if your answer is ‘no’ then there’s a fair chance you’ll get the same answer from a lender. Ask yourself why you wouldn’t risk your own hard-earned cash and try to establish what could be done to address any issues you have identified.

In many instances there is actually a lot that can be done to restructure a deal to make it acceptable to a lender, if everyone is realistic from the word go. Also, pick the phone up and chat the deal through with a loan manager. Here at Aldermore, we are always happy to explore how we can structure a deal to make it work. However, there are also occasions when a deal is never going to stack-up, no matter how well it may be presented. If that’s the case, you’re better being honest with your client and not creating false hopes.

Leave a comment