The Five “C’s” of a Perfect Loan Proposal
One of my favorite songs as a child up was “C is For Cookie, It’s Good Enough For Me.”
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Yes, I’m talking about the Cookie Monster song from Sesame Street. That song could get stuck in my head for hours, and I would annoy the rest of my family as I ran around the house singing it. “C IS FOR COOKIE, IT’S GOOD ENOUGH FOR ME!”
(You are welcome for getting it stuck in your head for the rest of the day. Carry on.)
But today, although I’m now hungry for a chocolate chip cookie, I don’t want to talk about sweets; I want to talk about loans.
I know, bummer.
But trust me, loans might not be as delicious as cookies, but they’ll serve you better in the long run. When you hear that sweet ‘ol “yes” from the bank, you’ll be able to buy as many cookies as you like.
So today we’re going to sing a new song. C is no longer for “cookie.” C is now for loan acceptance. And we’re not just going to talk about one “C,” we’re going to talk about the “five C’s" of a perfect loan presentation.
Want to hear your lender say yes? Then start incorporating these five C's in your loan requests.
***As a side note, and totally unrelated to this post, I wanted to invite you to this week’s BiggerPockets Live Video Webinar – where I’ll be teaching on “How to Invest in Real Estate While Working a Full Time Job.” Sign up here! Okay, back to your blog post…***
When you present your loan to a lender, whether it's a bank, a private money lender, a hard money lender, or someone else, how confident are you in the strength of the deal? Are you sure it’s a good deal you are buying?
If someone came to YOU and asked to borrow $20, and when you asked why, they stuttered and stammered and looked at the ground while talking… would that make you nervous? Of course it would! So why would you assume a lender is going to treat you any differently? Be confident!
Notice I’m not telling you to “act confident.” This isn’t false confidence. You should actually be confident in the deal because you’ve run over the numbers a hundred times, and it IS a great deal.
When you are confident, your enthusiasm for the deal will rub off on the lender and help them get to “yes.” After all, no one knows your deal like you do, so be sure you’ve run your numbers and have the confidence to say “this is an amazing deal.”
How clear are you when pitching your deal?
Are you handing over a pile of loose papers, unsure what is what? Are you throwing dozens of numbers out there, hoping a few of them stick? Is your presentation easy to follow?
When they ask you a question about the property, are you able to share the answer in a clear, easy-to-understand manner? Make your presentation so clear that a five-year-old could understand what you have, what you need, and how you are planning to get there.
Lenders are busy.
Don't try to impress a lender with how deep and complicated your loan presentation is. Be concise when you build your case for why they should lend to you. Yes, you should be thorough and supply all the information they need to make a decision. However, do so in as concise a manner as possible, or include a "summary" for them to quickly look at. They can dig into the details if they want, but they'll love to see all the main points summarized and easy to follow.
Again, if you hand them a stack of 200 loose papers, guess where those papers are going to end up? Yep, probably over in the “I’ll do it when I have time” pile, which may never get looked at again. So be concise and help them make quick decisions.
Don’t make your lender work for information.
If you want to hear a "yes," make it easy for them to look at the data and approve your loan!
This means they should not have to chase you down for paperwork because you’ve already given it to them. It means they should not have to try and find the gross monthly income on page 58 of your presentation because you’ve conveniently summed up the pertinent numbers on page one.
Help a lender say yes by making it convenient to do so.
Finally, put some effort into presenting your deal creatively.
I’m not suggesting you hire a plane to write “fund me” in the sky (though, that would be pretty creative), but I’m talking about finding ways to make your presentation stand out.
For example, on a recent refinance I applied for (and got accepted), I went to Staples and bought a simple binder with a laminated cover and color-coded separators to put all my loan docs into. On the front, I included a summary of exactly what I was looking for. I included a section with photos, another section with tax returns, another section with my credit report. I went over-the-top because I wanted my loan to stand out in the pile of his 1,000 other boring, black-and-white loan proposals.
Of course, I also included all the numbers of the property and showed the strength of the deal using the BiggerPockets Rental Property Calculator. I printed out the PDF report and put it in the first section of the binder. This way, the lender could immediately see the income, the expenses, the net operating income, the future projections, and much more — all in a confident, clear, concise, convenient, and creative presentation (with color… the 6th “C!”).
Of course, none of the five "C's" alone are going to get your loan accepted. The deal still has to be solid, and you still need to fit within your lender's requirements. However, by presenting your deal in its best light, you are able to increase the odds of hearing a "yes" by helping the lender do their job easier.
Do you have any other tips you’d like to share? Any questions on the above information?
Share your thoughts below!
(This blog post was brought to you by the letter “C!”)