It costs money to build or buy a billboard, and for many people that means getting a loan. But how can you find a lender and get a loan when you are just starting out? In this Billboard Mastery podcast we’re going to explore this topic and discuss some real-life methods to make lending attainable.
Episode 119: How To Get A Loan Transcript
So you're under contract to buy a self storage facility. You already have your loan lined up, closing is galloping forward towards you, and then suddenly you get a call from the bank officer. The bank officer says, I've got some bad news for you, but the bank has decided not to go forward with the loan. What do you do? This is Frank Rolfe with the Self Storage University podcast. We're going to talk all about what happens when the bank suddenly pulls the rug out from under you and reverses the earlier decision. Now, it doesn't happen that often, but I've definitely had it happen many times over my three decade career. And I got to tell you, it comes to you as quite the shock because you would never imagine that a bank that you gave ample time to think about the loan, you provided financials and everything else. How in the world could it happen? How can it be that suddenly the bank says no? Well, one example when this happened to me was the bank suddenly decided they did not want to make loans in Oklahoma. Now, how come they didn't know that on the front end? Why did the bank officer take the application, run it through the loan committee? Everything was approved, everything was good.
Well, it turns out that what happened was the president of the bank hated Oklahoma. He had had any number of failed loans in Oklahoma in an earlier part of his career, and suddenly what he wanted to do was, he didn't want to make loans there anymore because he thought that anything in Oklahoma would be a failure. Didn't make any sense. Most of his loans were in Stillwater. This property was in Oklahoma City. I explained to him, gosh I don't know what happened in Stillwater 20 years ago, but nothing to do with Oklahoma now. Still wouldn't approve the loan. I flew out to his office and met with him and ultimately he agreed to do it begrudgingly, but with a lower loan to value, not nearly as attractive terms. And so how did that happen? Well, what happens with banks when they reverse their ideas typically is there's just a lot of decision makers in a bank. Your loan officer, he's not the decision maker. You got loan committees, you got bank boards. You have all these different people. All it takes is one of them to say no and your loan is out the door, kind of like some fraternal organization where they have this right to blackball you, where they give everyone a marble.
They have a white marble and a black marble. If anyone drops the black marble into the marble container, you're not allowed to Join that fraternal organization. It's no different. So there's so many decision makers out there that could jinx you, that could shut it down. And that's just the way banks are structured. Also, you have to remember that banks work in under very fluid markets and one bad loan contained a 100 other deals. So if they've had a self storage facility that's not performing somewhere, even though it's not yours, you had nothing to do with it, they may just say, you know what, we're not making any more loans in this bank to anything located in blank. Even though it's nothing to do with your property or anything that you've done. So then how do you mitigate the risk? If there's a lot of people that can derail your loan inside the bank that you're depending on that loan to get the deal purchased on time under your contract, what can you do to help reduce this risk? Well, number one, you can have a very conservative loan proposal because often that's what alerts that one person in the bank to pull the rug out from under you is they think you're being too aggressive in your underwriting.
And being super aggressive in underwriting really doesn't work for you anyway. You got to put on a white lab coat. You have to be very scientific, very impartial when you look at every deal because you don't want to get involved in things that aren't good for you. Nor does the bank. Remember that the bank's credo is before there can be a return on capital, there must be return of capital. So the bank's number one loyalty is getting their money back. They've got to get their money back. And they think that those who have conservative values and conservative views on real estate, they're the most likely to get that money back in the door. So start off with a very conservative loan proposal, one that most people can't tear apart at all. Also on it, have a plan B and a plan C. If you say, well, here's where we're at with the storage facility and here's where we're going to take it as far as occupancy, also have a plan B if you can't get there and be vocal on that, say, look, if I can't get the occupancy up even one iota, I can still well cover the mortgage on the property.
But talk like a bank. Banks don't care about upside. They don't get any part of the upside. When a bank makes a loan on a sketchy, risky deal and you pull it off, they don't get a percent of your profit. All they get on any loan is their money back plus a set amount of interest. So if you want to make them interested, don't propose things that are risky. Also use a loan broker if you can, because loan brokers know the people who right now are making loans. So they'll steer you away from banks that have cold feet or have reversed things in the past. So loan brokers are great. What's a loan broker? It's someone who goes out and tries to obtain a loan for you. They'll normally come back to you with two or three options if they're successful. And they only get paid based on results. So there's not a whole lot of risk in using them, to my knowledge. But we've been using them for 30 years now and really feel strongly that they're an important part of the debt market. And what's really good about loan brokers are if something derails...
If a bank decides to pull the deal, they'll take those third party reports, they'll run around to all the other banks and their stable of lenders and they'll find you a replacement. We've had that happen in the past. You may lose your bank on a Monday and they've already got a replacement bank by Tuesday or Wednesday ready to go. So we've had great success. That's one of your greatest ways to mitigate that risk. Also just be ready for it to happen because since all it takes is one high up person in the bank to ruin the thing, the deal is never done until it's done. Never have the concept, oh, this is a done deal. Bank said yes. Bank saying yes doesn't mean a whole lot. Always can reverse it, up until that money hits the title company and the seller is paid and the title is transferred into your name, then all that other talk is just that it's just talk, but it doesn't mean much. And always be looking for the backup bank, the backup lender. Even though you got the bank that says they'll do the deal, again, we don't know for a fact that's going to occur.
So always be watching for somebody else in the event that were to derail. Having a lot of banks that you talk to on a continual basis is a really important ingredient. And don't forget to go ahead and continue those banking relationships with the banks that you already have. A lot of people take their banks for granted, after they do something with them they never talk to them again up until the loan renewal comes in. Don't be one of those people. That's really stupid. Talk to your banker on a continual basis. At least every six months. Take them out to lunch, or if you're not local, call them on the phone, give them a full update. It never hurts to share with them, kind of like a newsletter, like a news channel, all the good things going on at the property. They probably don't read a lot of that stuff, but if you were to call them up and say, hey, just want to touch base. Things are going great with the property. I'm so glad you made the loan. We got the occupancy up from 80%. We're now at 90%. We got the rent up from $100 a month, up to $120.
We're well beyond the budget we gave you. We're doing so well. That's going to make that bank spread that rumor to everyone else in the bank. Loan officer will say, hey, remember that self storage thing we did, man? Is it doing great. So now we're going to convert that banker into an actual PR agent, someone that's spreading the gospel of how good you are and how good your loans are. That's going to kind of help forestall anyone in the bank having a little mini revolution. Oh, we don't want to do any more loans with that guy. We don't want you to do any more storage loans. Why is that? Because look how good his deal is working right now. The bottom line is, yes, banks can change their minds. It does happen. But don't let that shoot you down. When that happens, don't give up. Don't say, well, gosh darn it, I really hoped this would work, but I guess it won't. You got to fight back. You got to get out there, you got to replace that bank. You got to go to your seller, tell them exactly what's going on. Be fully transparent. Say the bank said, yes.
Here's a copy of the letter where they said, yeah, we'll make the loan. Now they changed their mind, but I'm going to go find a new bank. The seller will typically stick with you. They want the deal to close. They know you'd been doing your best. But if you really work it, if you work your lending intelligently, when the bank pulls the rug out from under you, it'll be a learning experience, but you'll still get the deal done. This is Frank Rolfe from Self Storage University podcast. Hope everyone enjoyed this. Talk to you again soon.