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It is with this sentiment in mind that brokers should
consider expanding their focus beyond the typical
multifamily-investor transactions and work to close
more owner-occupied bar and restaurant deals.
Mortgage professionals who are able to meet the
unique needs of small-business owners have a real
opportunity to increase their revenue and stand
out from the increasing amount of competition that
exists within the small-balance lending space.
There are many things brokers need to know before
they can begin to take full advantage of this niche.
Borrowers need help
The restaurant and bar industry in the United
States is full of small-balance commercial mortgage
opportunities. The National Restaurant Association
reports that although restaurant sales are projected
to reach nearly $800 billion in 2017, only three in 10
restaurants are larger than single-unit operations.
This means that there are many thousands of successful small-business owners across the country
looking for mortgage loans of $5 million or less to
either purchase or refinance their property.
The problem? Borrowers have historically faced
great difficulty when trying to get the funding they
need from traditional sources, such as banks.
The fact that the more risk-averse, traditional lenders make it difficult for restaurant and bar
owners to obtain mortgage financing may not be
surprising given the high failure rate of these types
of businesses. But commercial mortgage brokers
should recognize the chilling effect bank denials
have had on their potential clients in general.
A recent study conducted by OnDeck, an online
lender, found that 82 percent of small business
owners who apply for growth capital were denied
financing by their bank. One can easily see how a
steady stream of past denials could dissuade a
prospective borrower from seeking commercial
mortgage financing in the first place.
The takeaway here is that although there are likely
countless business owners in a given market who need
commercial mortgage financing, few are achieving
success on their own. This is where mortgage brokers
can save the day by identifying and securing alternative solutions for prospective borrowers.
Alternative funding sources
Borrowers may not know it, but there are other
financing options available in today’s market. To take
advantage of bar- and restaurant-funding opportunities, brokers will need to familiarize themselves
with alternative lenders and understand how each
one stacks up against traditional banks.
n SBA loans. Perhaps the best-known alterna-
tives to traditional bank financing are SBA loans,
which are offered by lender partners across the
country and guaranteed by the U.S. Small Business
Administration. While brokers may already be
familiar with how these loans work, they should take
a closer look at SBA requirements so they can better
identify the clients who best fit these programs.
The ideal candidate for an SBA loan is a profitable, experienced business owner with strong
credit, loads of collateral and a demonstrable
need for the loan proceeds. Those who do qualify
can typically enjoy lower downpayments and
longer repayment terms than conventional bank
loans. This has the added benefit of enabling
small businesses to reserve their cash flow for
n Nonbank lenders. Of course, a great many
restaurant and bar owners who fail to meet traditional bank requirements also struggle to qualify
for SBA loans. Identifying solutions for these
borrowers can be challenging, but alternatives
do exist. Brokers who develop a stable of non-bank partnerships have a real opportunity to
use more flexible programs to establish new revenue streams and grow their business.
So, what does a nonbank alternative program
look like? Typically, the solutions these lenders
provide are designed to address the specific reasons borrowers get rejected by the more traditional
industry players. Therefore, nonbank lenders may
offer a stated-income program to meet the needs
of business owners who have trouble documenting
their income. In the same way, nonbank programs
may remove seasoning requirements or allow borrowers to take an unlimited amount of cash out of
their existing mortgage.
In exchange for these benefits, borrowers can
expect to pay higher interest rates, on average. But
brokers will likely find that many of the restaurant
and bar owners they work with are willing to pay
more for a solution that meets a greater number of
of $5 million