In this very exacting financial climate we live in, most of us would rather limit ourselves to what we are expected to do – nothing more, nothing less. Thinking about it, though, we can choose to go beyond the usual expectation for the benefit of others. This is exactly how Walt Trock, a senior partner at McMann Financial, feels.
The Proposition
Walt Trock has an interesting proposition coming from the point of view of a commercial lender; specifically, a boutique commercial lending agency. He believes in taking a lendee-first approach when granting loans to borrowers. Trock stresses the need for lenders to act more like a financial adviser or CFO, rather than simply approving loans.
“That’s what I find myself doing – more of financial planning and more of financial guidance. I tell clients, ‘No, you do not want that loan’ or ‘Yes, you do want that loan’ instead. A lot of times, when a borrower gets a reputation, no one wants to take the loan on because they think there is something inherently wrong with the loan,” he explains. “No one takes the time to stop and think about how to take a loan and make it right. Traditionally, people do not make money doing that – working with the client, and doing educating on the front end, working under the assumption that it will pay off on the back end.”
Makes sense? Sure it does. Commercial lenders are in a better position to know the risks involved in taking out loans. Sadly, however, most are more concerned with closing the deal and going on to the next loan applicant, more than anything else.
Getting a Commercial Loan from a Local Bank
Not many borrowers are aware that there are risks involved in taking out a loan from their local banks. While one can argue that there are risks to be faced wherever one chooses to source their loans from, opting for the lesser risks makes sense. No borrower would like to be saddled with risks, especially those that are greater than necessary.
Compensating balances is a reality in a local bank-sourced commercial loan. Local banks typically want a loan three ways. One is through a lien position on the property. Another is through a personal guarantee of the applicant even if the loan is closed in the name of the corporation that owns the property. Still another, the biggest of all, is the compensating balances.
This is where the borrower is required to maintain a specific amount on deposit – whether checking, savings, or near liquid cash assets – with the lending institution. The bank uses this to offset the portion of the cost in extending the loan. In essence, the borrower is being made to pay for interests, including amounts which they are not free to use since they are held as security.
Is There Any Other Options?
When reading stories of how banks quietly take ownership of a property, and how they purchase property way below market price, write-off balance due on the note, and seize cash assets of all partners including a special trust account, it is enough to give most borrowers goosebumps. It is not farfetched to believe that banks can possibly turn down a very profitable offer to buy from companies simply because the property can be sold at full value and the proceeds can be kept as profit. There are also instances of banks going after borrowers for the deficiency on the property’s sale because they defaulted. It would appear that borrowers still need to pay up for the difference between what is owed on the loan and the judgment price, which represents the price at which the bank sold the property to itself. Surely, there must be options better than this.
There is the option to apply for a commercial real estate loan from the secondary market, such as those offered by McMann Financial. Through entities like this, borrowers do not only get to avail of a loan, they also gain access to exceptional advisory and business acumen to ensure that they are not led financially astray. Moreover, loans obtained through this option are only guaranteed one way, which is through the resale value of the property.
While getting a commercial real estate loan from the local bank at very competitive rates is possible for normally qualified loan applicants, it is always best to determine whether it is really worth the extra risk. Commercial lenders should be helping borrowers fulfill their obligation and not making it difficult to do so. Walt Trock offers these parting words of advice: “Commercial lenders are in the service business and should be building mutually beneficial relationships. As it is today, commercial lending isn’t a two-way street yet.”
Originally posted on November 4, 2014 @ 4:18 pm