Borrowers and mortgage brokers are increasingly likely to deal with private lenders (hard money lenders) at some point during their loan search. Unfortunately, outside of real estate professionals who regularly deal with hard money lenders, very few people are skilled at communicating with and selling these lenders on their creditworthiness. As a result, private lenders’ responses have been mixed, and mortgage brokers and their clients have been frustrated.
So, what’s the deal with communicating with hard money lenders? They’re a tricky bunch because no two of them are alike. What works for one lender may not work for another, and lenders interpret information differently. Going in circles with private lenders can make your head spin and lead you to believe that obtaining a hard money loan is more complex than finding a needle in a haystack. But what if you could significantly increase the chances that your loan request will be reviewed favorably by almost all hard money lenders and approved?
“Character counts,” as the saying goes in the private lending world. Of course, the reference is to a borrower’s character, but the surface can be defined in various ways. Some lenders define it as knowledge and experience. Does the borrower have the know-how to see their project through to completion? Other lenders interpret this as mortgage history. Has the borrower ever chosen to default on a loan? For others, it almost literally means personality. Is the borrower moral, upstanding, and willing to accept responsibility?
We can’t predict what character means to each lender, and we can’t change who the borrower is. However, one aspect of the term “character” appears to be nearly universal in the world of hard money loans over which you have complete control. You can influence how private lenders perceive you or your borrower, whether they consider you “a pain to deal with” or if your files show promise and potential. The trick is to understand how to communicate with private lenders, and while some of these tips may appear trivial, failing to account for them can mean the difference between approval and rejection.
1. Be Specific in Your Information
Most private lenders will require an executive summary from you, which means you’ll have to explain why you or your client deserves a loan and how the loan structure will provide a win-win situation for both the borrower and the lender. Not providing clear and concise information can be a deal breaker, especially when the deal is more complicated, as many commercial scenarios are. Information that is vague, ambiguous, or directly contradicts other information you’re presenting forces a lender to ask questions (assuming they don’t just turn you down). It takes time for a lender to ask questions to decipher your information. The longer it takes them to understand your information, the less time they have for everything else. They are less productive when they have less time for everything else. As a result, they’re more likely to dismiss your loan request or reject it outright, assuming that it wasn’t worth their time in the first place.
2. Verify Your Information
No matter how busy you are, it would be best if you made time to fully comprehend the loan request you are submitting to a hard money lender. If your file is reviewed and you are asked follow-up questions, you will be expected to know the answers to any basic questions. If you don’t already know the answer, your credibility will suffer. The lender will perceive you as either a “paper pusher” or a disinterested participant. Besides the prospect of a commission, you may not be motivated to see the deal through. As a result, your information will be given a whimsical second look, almost certainly resulting in rejection. After all, why should the lender waste their time if you didn’t? Lenders accept brokers because they provide a valuable service: an initial screening of borrowers’ files that categorizes them as having the potential to be funded or not worth the time. Make sure you don’t forget to do your job because nobody in this market will do it for you.
3. Packaging and Labeling
There is a significant difference between handing someone a stack of papers and asking them to read them and handing them a tightly bound file with labeled tabs that allows them to quickly access the information they are interested in. If you do the former, your chances of success with private lenders are significantly reduced. Nobody wants to search for information; they want it presented to them. Professionally packaging and labeling your information goes a long way toward determining how you, your borrower, and your loan request are received.
4. Do Not use an Information Dump
Because private lenders are not banks, the information they require you to submit will vary from firm to firm. While many essential items may be similar, each lender will prefer a different flavor. If you send the same information to a list of private lenders, most will think you didn’t take the time to look at their loan submission criteria. They’ll wonder if you’re lazy, throwing things around hoping something will stick, or if you weren’t intelligent enough to understand what information they typically request. Worse, all of that unnecessary or improperly presented information will get in the way of excellent communication, making it take the lender much longer to get through it, wasting even more of their time. If their review team isn’t in a good mood that day, they might not even get to the good stuff, and you’ll get a rejection before your loan request has even been considered.
5. Please, Please, Please Type It
Daily, deals are overlooked, passed over, pushed to the bottom of the pile, and rejected by private lenders because they don’t want to bother reading borrowers’ or brokers’ handwriting. We were in 2011, and Americans are talking about living on Mars by 2030 – it’s about time to learn how to type and use a computer. Simple word processing is required, but not all mortgage technology. If you provide a private lender with handwritten information, they will unlikely take you seriously. It’s a harsh reality, but it’s time to change if you haven’t already.
Doing minor things will never improve the quality of your loan request, but it will enhance a lender’s perception of you. When lenders believe you’re worth their time, you’re more likely to get the attention you deserve and have lenders assist you in finding solutions. When hard money lenders see you as a straightforward, reasonable, organized, and trustworthy person, they will do everything they can to get you funded (assuming there is one). Learning how to communicate effectively with hard money lenders can transform your ability to get loans funded. Take your time, do your work, and the results will follow.
MMG Capital, a nationwide hard money lender, is managed by Chris Gleason. MMG Capital and its partners have over 50 years of combined real estate, finance, and lending experience, and they conduct all transactions with the utmost integrity and transparency. Our website contains additional information about MMG Capital:
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