People who are seeking financing often times shop lenders. Shopping lenders can mean two things:
1. Applying with multiple lenders simultaneously within a short period of time.
2. Applying for a loan with a lender, getting denied the loan and reapplying with another lender.
Now here's the problems with this approach to getting the money you need.
In either case, every lender you apply with is going to do a credit inquiry on you to check out your credit using what is called an in-file credit report. When a lender queries your in-file credit report, there is a notation on the credit report that leaves a track record of the lender performing the inquiry: lender name, date, that kind of thing.
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Lets take the first case scenario, number 1 above: Let's say you have a middle of the road commercial real estate deal and you are seeking financing for a small strip shopping center. It's a fairly good project but not great. When you shop lenders (banks and brokers) by communicating with multiple lenders, they will look at your credit file and wonder who has control of this deal. Too many lenders looking at your project at the same time can kill the deal, especially when using brokers who cross wires with lenders. This can be bad news for the borrower.
The second scenario, number 2 above: Let's say you are seeking a debt consolidation loan and you apply with a lender who denies you. So, in your infinite wisdom, you apply at another lender who also denies you, and a third and maybe a fourth or more. Knowing what you know now, you will realize that each lender will see that the last lender denied you a loan (or you wouldn't be applying with the current lender, right?) Each lender will question why the last lender didn't do your deal and red flags will start waving in the lender mind: If bank A didn't do the deal, what's wrong with the deal? And this process gets worse with each successive lender who looks at your file. They won't do the deal because the other banks didn't do the deal and that means there must be something wrong with you or your project, whatever it is. It's a chain reaction.
The key is in knowing which type of lender is the best lender to approach for financing FIRST. Many borrowers don't have this information and end up approaching the wrong lender for financing and screwing up their chances for funding.
It's what you don't know that can hurt you. Things banks and other lenders won't tell you...
Copyright © 2006 James W. Hart, IV All Rights Reserved
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