What your banker wished you knew!

This is my first blog post, so a bit about me - I am a senior vice president of commercial lending for a small community bank.  Since my bank is small...very small...I also underwrite my own deals, present them to our loan committee and get them to the closing table. Larger banks have teams of people doing this.

Also, realizing that real estate investing is not truly rocket science, I decided to become an investor about a year ago.  

First, let me say that this blog is covering "portfolio lender" banks.  Those banks that keep their loans in their portfolio and rarely, if ever, sell them.

Most investors at some point find that they will be looking to portfolio-lending banks to finance more deals or commercial real estate deals (5 units+ MF or other commercial real estate).

It amazes me the percentage of potential borrowers who come to me looking for financing who are completely unprepared.  So lets get you prepared to make that important bank visit and get you that great first impression!

1.  Call and set up an appointment.  I say about 20% of potential borrowers just walk into the bank and ask to see a lender.  It is unprofessional and that is not the first impression you are looking to make.  Oh, and don't dress like a slob on our first visit.  Afterwards, who cares.  Also, keep cussing down to a minimum.  I had a guy start dropping F-bombs five minutes after he walked into my office - never met him before...

2.  Know what the lender will be asking for...and have it with you.   So many people I meet with come with nothing, or very little.   Here is my wish list of items a potential borrower should bring to their first meeting with me:

• A written narrative on your loan request.  What do you need the money for?  How much are you looking to borrow?  What your project is and why you are doing it.  Info on the property.
• Numbers:  Have an understanding of cash flow:  BiggerPockets has excellent calculators that will spit out a beautiful report.  Bring those.  Understand the language.  LTV = Loan to Value;  LTC = Loan to Cost; Debt Service = your payment, typically expressed as an annual figure; DSCR = Debt Service Coverage Ratio (Net Operating Income + Interest Expense + Depreciation + Amortization / Debt Service). 
• Three years Personal Tax Returns - Full returns, no missing pages!
• Three years Business Tax Returns.
• Interim Profit and Loss Statement & Balance Sheet.
• A spreadsheet of your current real estate portfolio.  Columns showing:  Address, Cost, Value, Loan Balance, Equity, Gross Income, Expenses, Loan Payment.
• A Current (last 3 months) Personal Financial Statement - Complete & Accurate!!!!  I put so many !!!! behind that because the amount of half baked, incomplete, math error filled personal financial statements I get is mind boggling!  That just tells me you are sloppy and have poor attention to detail.  Big strike against you.
• A Biography or resume on yourself.  The Bio should be written in third person and tone down on the adjectives.   Experience, education, family, where you are from.
• Credit Score:  Have a good idea of what your credit score is and what is on your report.  The credit report shows your financial character.  Do not lie or leave out things on it during our conversation.  I will be pulling it and I will see those collections you failed to tell me about.  Look...sometimes life screws up our credit report.  Be prepared to mitigate the negatives, preferably in written form.

3.  Also have the items above in electronic format and tell your lender that you will provide electronic copies to them if they so wish.

4.  Time #1:  Understand that bank lending is a process.  This process will be sped up by providing the items the banker is looking for you to provide (most of them outlined above) as soon as you can.   Tell the banker what your timeline is.  It is good for both sides to set expectations early.   Know that appraisals may take awhile, commercial ones even more so.  Ask the banker how long, once you get them all the items required, the approval process takes.   Ask them when does a request have to go to the loan committee.  Usually it is based on a $ amount.

5.  Time #2:  Keep to the time allotted for the meeting.  If the lender wants to go over, they will tell you.

6.  Deposits:  Offering to bring deposits to the Bank if the loan is approved (not necessarily all of them - though some banks will try to get everything from you) before being asked goes a long way.

7.  Follow Up - Get your banker's card and shoot them a thank you email highlighting some of the meeting points.  

Know that as a lender working at a bank, I typically am working on a number of loan requests at the same time.  If someone came in and handed me all those items I mentioned above during our first meeting, I would literally fall out of my chair.  You just made my job so much easier and hence, I will probably move your request to the top of my stack.

Surprisingly, I would say less than 5% of potential borrower do this.  Pretty crazy.

Hope this helps.  Feel free to comment below or PM me.

Good Luck!  Look for a future blog post about commercial loan structuring, important numbers/ratios and what you should and should NOT negotiate on!