From my home office in Lincoln, Nebraska, and with apologies to David Letterman, I bring you the top ten things your lender wants to make sure you know for the most positive transaction experience possible.
10. Verify your credit ahead of time.
“Get your credit report from a legitimate site like freecreditreport.com or directly from one of the credit bureaus ahead of time,” advises John King, principal at Green Commercial Capital. “If you have issues, be up front and ready to explain them.”
9. Tout your experience.
“Whether it is industry experience, or experience as an operator owning a business, we know this is going to be crucial to your success in self-storage,” says Terry Campbell, Executive Vice President at Live Oak Bank.
“If someone is building, we look for property management experience because it is different than an existing property that generates cash from the first day forward,” explains Nick Collins, vice president at First Bank Financial Centre. “When an applicant is acquiring a property, we do look at their past experience and it certainly helps if they have owned real estate. Rules about experience are not set in stone for SBA loans and they are tailored to borrowers who are first time owners.”
8. Lender experience is important too.
“Work with a lender that knows and understands the self-storage industry,” says Campbell. “I can’t stress that enough. I have many stories of how we’ve helped people keep from making huge mistakes because of our experience. Other banks would not have been able to help them. We go to every location and meet the borrowers face-to-face. We inspect the buildings. I’ve been known to get on top of the buildings, and even show people how the springs on the doors work. We’ve been able to save people a lot of heartache from buying or doing projects that they shouldn’t. We want to protect the buyers as well as the industry.”
7. There is room for negotiation.
“Many things are negotiable – it can be rate or it can be the structure of the deal,” says Campbell. “But it depends on many factors; what’s the strength of the project, the strength of the borrower, the amount of equity, the cash flow?”
6. Get a feasibility study.
“If you have a gut feeling telling you to get a feasibility study, or if you have any hesitancy and you are not 100% sure about the viability of the project, err on the side of caution and get one,” advises King.
Collins explains, “All SBA 504 loans require a feasibility study, although they are not required in the 7a program. The bank may require one if there seems to be oversaturation or any other red flags in the market.”
“We almost always advise borrowers get a feasibility study – even experienced operators should get one – for any size deal,” says Campbell. “I’ve been in the self-storage business for 24 years, and I’m an owner myself and I won’t do a project without a feasibility study. Someone who is not willing to spend the money on a feasibility study that is going to give them all the information and the comfort level that both they and the bank need may not be a fit for us. It’s not an expense, it’s an investment. The loans I’ve seen over the years that went bad went bad because they built it somewhere they shouldn’t and they didn’t have a feasibility study.”
5. Be responsive.
“We work as a team. I don’t push things into the applicant’s court and just leave them to it,” says Collins. “We try to quarterback the process but I need the applicant to respond in a timely fashion.”
This increases your likelihood of getting approved and then closing the loan. “Being timely and responsive is crucial,” King concurs. “Ground up projects have a lot of moving parts. You have roll up your sleeves and attack it and you cannot assume that things will go as planned. You must assume there will be things outside of your control…you just don’t know what they will be until they reveal themselves. I’ve seen major weather events or even changes in SBA policy kill or slow down deals.”
4. Be prepared.
“Have a budget, a site layout, have zoning approval in place – we can’t put the cart before the horse,” says Collins. “The ideal applicant has everything in place and available that is required, from personal financial statements to tax returns.”
3. Don’t sit on your paperwork.
“Again, how quickly the borrower provides documents and information is out of our control. We can call them and email them, and call them and email them, but we can’t make them respond!” says Campbell. “Third party reports such as the appraisal and the environmental report are mostly out of our control once we order them.”
2. Understand what is – and is not – in the lender’s control.
Campbell explains: “The only thing in our control is setting expectations. We can set expectations for what the borrower should expect because the timeline is based on them getting to us what we need to start underwriting get through closing. We are usually waiting on the customer.”
1. Character counts.
And the number one thing your lender wants you to know: always tell the truth. Be it on your loan application, or throughout the process, always tell the truth.
“The number one reason loans go bad or we have issues with a loan can be summed up in one word: character,” says Campbell. “To me, the applicant has to be honest and tell the truth. They should not be trying to do things to get around the rules. People lie on their loan applications all the time. It is wrong and it is immoral, and it is also a crime.”
King agrees. “Just be honest. Lenders do background checks. We’ve had people who – believe it or not – have had two personal bankruptcies due to situations in the past and now they are doing fine. Granted, this is an extreme-sounding case, but you should not assume you do not have to disclose something just because it is not on your credit report. If it is recorded somewhere in the public record, it will be found. It’s not an egregious sin to have had something really bad in the past as long as it is old enough, isolated and explainable, but not disclosing it is going to make the lender not trust you.”
Now print this article and go fill out that loan application!