The 10 Essential Questions You Must Ask EVERY Commercial Lender You Speak With

Getting the bank to fund your commercial real estate deal isn’t about wearing a suit or having a slick pitch deck. It’s about knowing exactly how to play the game — and in this episode, I give you the entire playbook.

If you’re making the leap from residential 1–4 unit investing to commercial multifamily or other income-producing assets, this is the no-nonsense, step-by-step guide you’ve been waiting for.

What you’ll learn:
✅ The key differences between residential and commercial loans (and why your W2 doesn’t impress lenders anymore)
✅ Why local community banks and credit unions are your best friends (plus a stat that will blow your mind)
✅ Exactly how to find the right banks, build real relationships, and get them to say YES
✅ The 10 essential questions to ask every commercial lender (miss these and risk blowing your deal)
✅ What happens behind the scenes during underwriting — and how to set yourself up for approval
✅ And what you can do TODAY to get the ball rolling!

💡 Whether you're eyeing your first 12-unit or scaling into 100+ doors, this video will teach you how to approach banks like a pro — and walk away with the funding to make it happen.

👉 Don’t wait until you have a deal under contract. The smartest investors start building their financing relationships before they need them.


00:00 Introduction to the Podcast
00:27 Importance of Bank Financing
01:46 Differences Between Commercial and Residential Loans
04:58 Finding the Right Lender
08:47 Building Relationships with Lenders
12:09 Questions to Ask Your Lender
21:16 Submitting Your Deal to the Bank
23:34 Final Recap and Action Steps

Transcript

0:02

Yo, what is up everybody? My name is Matt Drouin, and I'm the host of the Go Big Live Real Estate Investors podcast. The show to listen to and to watch. If you are an experienced real estate investor that is looking to scale up into larger. Commercial apartment deals. I lied a little bit in the last week's episode when I explained to the capital raising 1 0 1 process, and it would be covering deal flow this week. However, I misspoke. And the next crucial step is actually. Lining up your bank financing. Yes, you have the ability to raise capital for real estate deals, but your lenders, your banks, are going to be an essential partner in you closing deals and building a scalable commercial real estate portfolio. So in this episode, we're to cover exactly how to do that step by step. Ever try reading at bank loan terms and feel like you're deciphering hieroglyphics. Grab your decoder rings, folks, because today we're gonna be pulling back the curtain on exactly how to get banks to say yes to funding your commercial real estate deals. If you've been flipping duplexes or renting out triplexes, and now you're eyeing that 20 unit apartment building down the street, this episode is for you. We're gonna be diving into how to secure bank financing for commercial income properties, specifically multifamily, but it all applies to all different types of asset classes. By the end, you'll know the key differences between residential and commercial loans, how to find the perfect community bank or credit union for your deal, how to schmooze your loan officer before you need the loan. The must ask questions that separate newbies from the pros and insider secrets on what banks really look for when deciding whether to fund your deal. Sound good. Great. And hey, stick around because later I'm gonna share a shocking statistic about community banks that will totally change how you think about getting loans. So let's jump in. So in this episode, this is gonna be the no nonsense roadmap to commercial bank financing. First and foremost, we need to really decipher, the key differences between commercial and residential financing. If you've been growing a real estate portfolio, you're usually used to 30 year loans, fixed rate terms banks deciding to lend to you on your debt to income ratio rather than the actual property value and cash flow. Let's talk about the key differences on how these are different from each other. Commercial deals are evaluated more on the actual property itself, rather than you as the borrower. A lot of times with residential properties, they don't care what the property's gonna be rented for. They just care that you're not a deadbeat, you have a decent credit score. Do you have decent income to actually support this new, several hundred thousand dollars mortgage you're requesting? The key differences is that they're gonna find out there are loan terms, amortization. The rate locks, DSCR, debt service coverage ratio versus DTI or debt to income ratio. So generally. Commercial loans are not a 30 year amortization. They're usually a 20 to 25 year amortization means that actually the payment is usually higher than you would on a 30 year loan. Also the interest rate is only locked typically for five years. Sometimes you can buy what's called an interest rate swap to get it out to 10 years, maybe seven years. But it's not fixed for 30 years. Also, another shocker is that you have a balloon payment. Typically it's gonna be a 10 year term as opposed to a 30 year term, which is no problem. Balloon payments do not matter in commercial real estate.'cause generally speaking, because our properties are increasing in value so rapidly, that we actually refinance our properties every five to seven years. So balloon payments do not matter, but they kept me on edge. And it was like, how am I gonna pay off several hundreds of thousand dollars worth of mortgage debt when this loan term is up. Also, cashflow is going to be much higher weighted than your debt to income ratio. This is cashflow at the property level, commercial lenders that value DSCR debt service coverage ratio on properties, they do not really care about your debt to income ratio. Funny story is post covid, I, when interest rates were in the 2% range, I went to a bank to refinance my own personal residence and I got denied because. As a real estate investor of almost 19 years, I don't have any income to report because I have so many expenses, depreciation expenses that offset a hundred percent of my income is derived from my real estate rental portfolio. I get approved on multimillion dollar loans with basically zero income. So they're going to value the property level cash flow, and they actually require you to cash flow the property usually between 20 and 25% above your breakeven point. This is called debt service coverage ratio, and banks will either have a minimum D-D-S-C-R of 1.2 or 1.25 or even more based upon the risk of the deal. The other advantage to commercial lending is they will lend to your LLC or limited liability company. That's why a couple, episodes ago I said, just form your LLC right now'cause you're gonna have to use it when you're buying commercial real estate deals and using commercial real estate financing. So setting up your LLC, they lend to that. None of this quit claim jeopardy that you play when you're. Using residential financing to acquire properties and quit claiming the property, which can technically trigger a due on sale clause. When you are doing that, most residential investors hit a wall when they realize banks don't care about their W2 jobs anymore. So coming up, I'm gonna tell you how to get your property to speak the bank's language so you don't get ghosted after underwriting. So here's why community banks and credit unions are your best friend when you are building a million dollar to$10 million real estate portfolio. a surprising stat that I read the other day was that small banks actually fund two thirds of the commercial real estate deals across the country. That's two thirds when you think about big deals equal big banks, and you're thinking about, Wells Fargo, chase Bank, bank of America, they don't touch deals, especially if you live in a, secondary, tertiary markets. They are not doing commercial lending on your deals. It's usually your local community banks that take deposits in and that's how they actually keep the lights on at their branches is by taking deposits in and lending it out on commercial income property deals. The great thing about local banks is that they are relationship focused, they're flexible, and also they're hungry. Remember, deposits on their balance sheet from depositors are actually a liability, so they need to offset that liability with assets. And those are actual loans and they love to lend on commercial real estate because it's lower risk than other types of loans or investments out there type like such as consumer loans. So don't ever expect that you're gonna be able to walk into Chase Bank and say, I wanna buy a 20 unit apartment deal. Can gimme a loan on that. They're gonna just say no. And they're not gonna refer you to the small bank down the street. They're just gonna say no. So a lot of investors that I talked to are like, Matt, I can't find any bank that will loan a commercial income property. You gotta look in your own backyard. Just like I said before in the previous episode, you were standing on your own acres of diamonds. So check your community banks. So now that you bought into community banks and credit unions, how do you actually find a lender who's excited to fund your deal? So finding the right lender is gonna be absolutely mission critical in your success of landing your first several commercial income property deals. So first of all, we backing up a few episodes ago, we talked about actually defining your criteria. So you're gonna have that crystal clear acquisition criteria that's in your mind that you're buying a, 10 to 20 unit apartment deal that is priced between 1 million to$3 million. Okay. In the, whatever. Great. Greater Fort Worth area in Texas. Okay. So being super specific on that actual criteria the first thing I start doing is I ask for referrals. I look to the rock stars that are out there in my community and I ask them like, who's funding your deals? Okay. And this is like funding deals for deals you actually want to buy, right? That 10 to 20 year department deal. So finding the investors out there that are active in that space. If you do not know anybody, that's like a face-to-face relationship. I love Facebook groups. So going on real estate, specific interest groups for your area. Whether it's the, the Skokie, Illinois real estate investors group and just putting the question out there, Hey, I'm looking to buy a 20 unit apartment deal within the next six months. Who are the best local lenders out there with their contact as well? You don't want just a name of the actual community bank because not all loan officers are created equal. You want to actually get the specific contact that's at that bank because if you just dial the bank's number and ask for their commercial real estate lending department, they're gonna put you in touch with the newest greenest commercial lender that's at that bank, and that is not going to be a great ally with you in this journey. Another resource is BiggerPockets, for instance. BiggerPockets is an online social media community that will actually have investors probably in your market. So you can pose that same question you did in the, on the Facebook group to get that. Now you're just trying to find three total commercial real estate lenders that are out there. You don't need to get 10 of them, but three is a great start. If you exhaust those resources and you can't get. At least three go to your county clerk's database, for instance, a lot of them are actually computerized across the country. And find your multifamily properties that are in your area, and find ones that have either been purchased or refinanced recently. And you can find a. Who holds the mortgage. And then also get a contact number there. And I'll actually just contact the property owner themselves and say, Hey, listen, I saw that you refinanced or purchased this property back about 12 months ago. I saw that you used Canada National Bank and Trust. Did you like your experience there? And if yes, who's your contact there? So from this, you're gonna create your short list and based upon the fit and experience. And then once you've found your dream banks, the next step isn't going to dump a deal on their desk. It's to show up like a pro and win their trust before you actually need the money. So just like in capital raising, asking for the money or building a relationship before you actually need it is going to be critical. Like I said, you gotta build a relationship before you actually have the deal. All right, so I've done made this mistake in the past before is I was like, okay, I got the, the referrals and that sort of thing. I got the contacts, I found a deal, I wrote an offer. The broker responded back to me. He is Matt, can you gimme a term sheet that you're competing against two other offers. I said, yes, sure, absolutely. I contacted this lender and lo and behold that they were on vacation. Okay. So then I called the second referral, and then they never returned my phone calls. And then I called the third one. And by the time that I was done, I. Dicking around with this, that deal slipped through my fingers. Okay? So you want to build that relationship first, and then what you're gonna do is you're gonna set up meetings, and this could be either at their office, it could be for coffee, if it could be for lunch, and if you're getting a warm referral. These people are more. Likely to actually take you up on this, this request for coffee date, for instance. So you can build that face to face time and that relationship value so that when you actually have a need and you have a deal that they put a face with the name, they understand your background and they're willing to issue you a term sheet. And a term sheet essentially is a pre-approval letter. For a commercial income property deal, there is no such thing as a pre-approval letter. In the commercial income property transaction space, it is term sheets, and term sheets are not issued to a borrower saying that. Hey, Matt is pre-approved up to$2 million for an apartment deal. It is on a deal by deal basis, so you can only get a term sheet based upon a specific deal after that banker has reviewed the rent roll and the financials and all that good stuff, we're go into that later. And how to obtain term sheets for when you're submitting offers in the future. Now in preparation for these meetings with these bankers, you're gonna wanna put together like a credibility book. And this doesn't have to be anything that's too fancy, especially if you have some experience at some before and after pictures of properties you've bought and renovated just your story as a real estate investor, your experience. This is like essentially like a resume. There's a lot of power in visuals when you're doing this and. Loan officers are gonna have to go to bat for you when you are submitting a loan application for a commercial deal, and so they cannot do that to the best of their ability unless they're armed with the facts in terms of what your background is and what you've accomplished in your experience level. No, don't go out there. Hiring a web developer to put together a fancy website. This can essentially be a Microsoft Word document or a Google document that has, a short writeup about yourself, some before and after pictures, picture of your pictures of your buy and hold portfolio, that sort of thing, at some point in time in the future. A simple Wix website or a Weeley website with the same things as fine. It does not need to be a, multidimensional type of website. So that, it could essentially just be a homepage, right? That if people enter that, simple domain in it, whether it's your, first and last name.com. Or whatever, this type of stuff can be set up for less than$10 a year, and so you have a central place to keep your stuff, or it could even be on your LinkedIn profile. I've built out a LinkedIn profile that essentially is like my own personal website that people look at that, that they can look at what my background is and what I've accomplished to get a good sense of of my track record and performance thereof. Next I'm gonna go into specifically what questions to ask at these appointments so that you can start to categorize these lenders as who might be a best fit for the deal. Do you have coming up in the pipeline? Remember, next week we're gonna cover deal flow, I promise, on how to prime your off market deal flow so that you are able to find and source properties where literally the capital will raise itself. Where you've put the work into building out your OPM infrastructure. So wanna know what separates the investors who get funded from the ones who get ghosted. It's the questions that they ask. So let's dive into the 10 questions to ask your lender next to these appointments. Now, one of the reasons I love going out for lunch, coffee, dinner, drinks, whatever, is because. There's some breathing room from the actual conversation. I do not go into interrogating the banker with peppering them with these questions. First, I wanna build some rapport, find some common ground, like maybe, we have our wives went to the same college I. Whatever. And then after I've built up some rapport is when I'll get into, I don't wanna use the entire session of, just a small talk. I'm not the type of person that actually likes to do small talk, but I understand it's value in bringing down that relationship tension. And then I go into the actual, okay. Are you okay if I ask you some questions? I just want to, understand that. Fully how you guys make decisions upon loans so I can understand how you guys operate so that I'm a great borrower to work with.'cause you want to be a borrower that is organized, responsive, and understands the entire process that bank uses as you're going through this. Because people are naturally lazy. They want to deal with people that are experienced and know what they're doing. So this is your chance to. Get educated on that so that you can shine with this loan officer as you go throughout this process, because I guarantee you, at some point in time in the future, you're gonna have a deal that does not meet the, inside the box or cookie cutter bo cookie, hutter box that a particular bank might want. So if a loan officer likes working with you knows, likes, and trusts you, they're more willing to advocate for, let's say, a policy exception with a property that might have some hair on it in the future. So here are the questions first. What are the max LTVs, you'll do on, let's say apartment deals, for instance. This is always changing back when rates are low and banks are out there lending a lot of money on commercial income property deals, that they're going to generally be higher LTVs. And you'll be surprised these three meetings you have, you're gonna get three different answers. Okay. So just knowing what LTVs they go up to at that point in time. Second question is, what is your DSCR requirements? Some banks spend, depending upon the actual cycle or real estate cycle that we're in, are gonna have either a 1.2 to 1.25. But in this environment, we're having banks that are, having a 1.3 debt service coverage ratio, meaning that they require you to make even more money in cash flow in the actual purchase or. Having less debt on the property and therefore, even if a property appraises for a million bucks and they'll do 80% loan to value, if they have A-A-D-S-C-R Covenant or requirement of 1.5 and 80% loan to value does not support that, then they actually will only approve you for that amount of debt that will actually allow you to perform at that DSCR. The rates and terms is a common question I'm gonna ask. Okay. Generally speaking, rates do not lock at your loan application like they do in residential. Typically with residential, you're gonna have a interest rate that's locked until closing, for instance, not So in commercial, a lot of banks that I deal with is that rate will float up until 72 hours before closing. Some lenders will actually lock that rate at loan application, just like residential mortgage companies do. So you want to know this. When you're going into it and documenting all these answers on a simple spreadsheet that you can drop in a Google folder so you can know how these banks work. Also ask'em in terms of rates and how long they're locked for some of these banks, depending upon deal sizes, we'll have partnerships with companies that will allow them to offer what's called interest rate swaps, which will allow you to essentially buy a contract that will allow you to not only lock the rate earlier in the contract process, but keep the rate locked for longer than let's say an initial five year period and will allow you to lock up to 10 years. The amortization schedules, typically these banks will do, like negotiate between, for instance, if they do max. 80% LTV, they'll do a max 20 year amortization. 75% LTV, 25 year amortization. So there's like a little bit of a continuum between those two. So just understanding what types of amortizations they'll do there. Also asking if they do ever do interest only periods. Sometimes we did a deal, financed a deal last year where we had a interest only period for 18 months on a deal that we did because it was a heavy value add deal. We're doing a lot of construction to this property, and so the bank agreed to do a interest only period to help with cash flow in that, and then it amortizes based upon 20 year amortization after that. The next question is, what do you look for in a personal guarantor? Now, backing up a little bit. Community banks are going to require a personal guarantor on their deals. This idea of non-recourse financing, just because they're lending to your LLC, doesn't mean you don't need to guarantee the loan. So asking what do they look for in terms of a personal guarantor is gonna be a very important question. It is gonna be one that is going to determine what bank I'm actually going to use some of these small but mighty banks generally are gonna await the property more than they do the deal. Other banks are gonna require the guarantor to have a net worth equivalent to the actual loan amount. So those ones that are flexible on the strength of personal guarantor is some of them. I bought my first$5 million worth of real estate deals without ever having that net worth as a requirement. So understanding that right up front and what they require as a personal guarantor is very important. The next question is gonna be the approval timeline and also the decision making flow within the bank. There's a little bit of a, some nuance here, small but mighty is great. But sometimes when you're trying to look at a bank, asking this question of first. Now, what is your maximum relationship limit or aggregate credit exposure with any particular borrower at your bank. If you have a bank that does commercial loans, but they only have a million dollar relationship limit, then that is not gonna give you the runway within which to close the deal. And then close, second, third, fourth, and fifth deal subsequently after that. So understanding that you can first cement a relationship with a bank that you can grow with is gonna be important, and by doing that. Is understanding what their ace or aggregate credit exposure is but for any particular borrower at that bank. Also understanding, alright, when you're talking to a loan officer, what is the size loan that you have authorization to approve up to? There are some loan officers that can actually approve a loan as long as it goes through credit analysis. All right? It just, it meets their internal credit analysis team. Then after that, once they get above the actual approval limit for that individual loan officer, then it will go up to loan committee. And loan committee is, these banks typically will meet once or twice a week. They'll bring your deal to that loan committee, and then they'll submit it for the review of all the other loan officers that are in that bank. So this is the other important thing, is like for that banker to actually know and trust you, because they're gonna appear at that loan committee. And they're gonna be facing scrutinizing questions from the loan officers that are trying to shoot holes in their deal. Because their job at the end of the day is to protect the solvency of their financial institution. And then after a loan committee, once you get above that limit, then it goes up to board of directors approval. And board of directors approval is like essentially, where is it the highest level of scrutinizing for any particular loan product. So knowing that. Alright, what the level is here.'cause you may have a loan officer that could approve up to$500,000, has to go up to loan committee for a million dollars and it has to go up to board level at$2 million for a credit request. You're gonna want to know that and that may be a lender that if I'm looking to buy a million to$2 million deal within my first year I'm gonna be right at board level for the approval process. That might be a bank that I'm not going to start a relationship with at this point in time. The next question is prepayment penalties. What are your prepayment penalty guidelines? Now this is a great thing about credit unions. Credit unions are completely disallowed from charging prepayment penalties on there. So if you either refinance or sell a property, generally speaking with a community bank, you're gonna have to pay a prepayment penalty anywhere between 1% to 5% of the unpaid loan balance. Most community banks will have a step down, so they may start off with a 5% prepayment penalty in year 1, 3, 2, 1, 1 0, for instance. So you want to know this?'cause if your business plan is to. Buy the property and it's a heavy value add property distressed and renovate that property and refinance in less than a year, and you have a 5% prepayment penalty and a million dollar loan. That's significant. So these things also can be negotiated. So if they have a steep prepayment penalty, just ask that loan officer, Hey, are you ever able to to negotiate these prepayment penalties? The last question I'm gonna ask is what types of deals they funded recently I wanna take a look at, okay, what is their track record in terms of what they like to lend on, and then can you show me examples of those ones? So when I'm look out there looking at properties, sometimes these loan officers can be essentially be business bankers they're disguised at as commercial real estate lenders.'cause there's two different breeds of business bankers, so to speak. In community banks. There's business bankers and then there's commercial real estate lenders. You wanna be working with commercial real estate lenders, not business bankers who happen to do a little bit of. Commercial real estate business bankers typically are more inexperienced loan officers within a bank. Your commercial real estate bankers are ones that have much more experience understand how the actual business works. Business bankers are focused more on what's called CNI or commercial industrial lending for owner occupant businesses, for instance, like a label making company not more on real estate deals. So understanding, okay, what? The whole thing is like you are what you eat. What have you eaten recently? All right. I wanna see it so that I can understand, okay, is this in alignment with the type of deals I wanna do in the future? So you've got your answers. So now what happens behind the curtain at the bank when you submit your deal, we're gonna be pulling back the curtain on that next. Okay, so this is gonna be a pretty short section because we're pretty early on in the process. We do not have a deal to present yet, but in order to get term sheets, for instance,'cause generally the order of operations is that you make an offer to property, a broker or a seller may ask you for a pre-approval letter or term sheet, for instance. Term sheet is the right terminology. But to get a term sheet on a property, you're going to need to submit financials to the actual lender and typically they're gonna need a pro forma, which is projected financials. This is projected financials for next year, and then also the rent roll on the property. Typically, those two documents are enough to actually get what's called a term sheet or a pre-approval letter on a commercial income property. So these are the things you're gonna want to know so that you do not end up. Setting yourself up for failure when you are asking for term sheets. So first things first. I go into a lot of trainings that are on my YouTube channel on how to underwrite to commercial income property, and the biggest mistake you could possibly do is taking historical financials and then just extrapolating them in the future. And furthermore, taking historical financials and submitting them at all period to your commercial lenders.'cause what they're gonna do is they're gonna extrapolate. The financials that, that were submitted to you by the actual seller or seller's broker, and they're gonna extrapolate that out into the future. Okay? And you're gonna get a lot of denials as a result of that. So a lot of property owners, when they have their, historical tax returns or schedule Es on a property those expenses are gonna be abnormally high, especially if they've done CapEx. A lot of property owners, including myself, will. Expense CapEx in order to get the write off rather than actually amortizing that CapEx like a roof, for instance. Like we've actually totally expensed a or made, a hundred percent bonus depreciation a roof before. And so you want to present the appraisal version of that property to the lender, not what the actual historicals are because it. I guarantee you that when you look at, any Schedule E for instance, which a Schedule E is a historical tax return into property, those numbers are going to be abysmally low. And a lot of times when you submit them to request a term sheet on a property you're gonna be faced with a extraordinarily high amount of rejection. So you wanna frame that deal on its projected financials based upon normalized expenses, not historicals. All right, great. So the final recap and action steps,'cause remember, this show is about what you can do today, this week, this month to take action towards your goals. So knowing your numbers, your DSCR, your LTV and amortizations with your banks is gonna be really important. Okay, number one, find those lenders, and then build those relationships with three lenders. Okay? So the goal is over the next month is to set up three coffee meetings or lunches with that recommended commercial lenders that are in your area. Create your bank book or your credibility book before you have those meetings. You do not have to, commission a professional graphic designer to do this. Just visuals in very short, easy to understand about what your background is, what types of deals you've done in the past, so the banker can quickly ascertain that this person is actually has some experience. It's not a complete newbie. Ask those questions that we had laid out in this training and then track the answers in a simple spreadsheet. Then know the bank's process, the people, and also the preferences for the collateral so that you can know, okay, this is a Canada National Bank deal, or this is a ESL deal, or this is a family first federal credit union deal so that you can know what types of collateral they like to lend on so you can make those marriages happen when you're looking to put together your bank financing for those deals. After you have actually completed this and met with those lenders, it is an extreme confidence builder. I have three lenders that are willing to do deals with me. I have those relationships, I'm ready to go. And also, you're gonna learn a lot from those people that you end up meeting in terms of preferences, what's going on in the marketplace. I always ask like people, what are you seeing out there? So getting that market intelligence is insanely effective at being able to, increase that confidence factor with moving forward to your next step, which is gonna be on your deal flow, which we're gonna go into next week. So next time someone says, banks aren't lending right now, you can just smile and say, maybe not to you, but you've got the roadmap now. Now go build those relationships and close your next deal with confidence. In next week's show, we're gonna go into actually how to prime your. Off market deal flow. I'm gonna go into great detail and specifically what you can do in the same type of actionable step-by-step process that we did this week so definitely be sure to check that out next week and we'll see you soon.