9 Tips for Commercial Real Estate Loans for Borrowers
Commercial real estate loans can be a risky proposition for borrowers. If you only have experience with residential real estate agreements, it pays to do your homework before you get into something over your head on a commercial deal. Here are nine tips to get you started on your education journey.
Tip #1. Watch out for shysters
There are a lot of reputable commercial lenders out there but sprinkled in with the good are a sizable amount of crooks who only want to score your application fee and vanish in the night. Do your due diligence when selecting a lender.
Tip #2. Borrow locally
You will typically get a better deal on a commercial real estate loan if you go to a lender located near the property you are purchasing. Lenders like to be close to their projects; it saves them both money and time.
Tip #3. Forget 45-day processing claims
Almost every lender will tell you their process will take 45 days. When you hear this claim, know to double it to 90 days, and you could avoid getting yourself in a bind.
Tip #4. Open an account with your lender
What helps build a relationship better than money in the bank? In the commercial real estate lending game, not much. Create a depositor relationship with your lending institution, and they will lean toward giving you better terms.
Tip #5. Play the field with commercial lenders
Submitting applications to 4 or 5 lenders is not only ethical but its also the best way to find the best terms on your loan.
Tip #6. Find the right sized lender for your loan
If you are working on a smaller project, go to a smaller lender. Likewise, don’t take a multi-billion dollar deal to a mom and pop shop since they likely cannot handle it. Match the size of the loan to the lender for better handling.
Tip #7. No broker-ordered appraisals
Brokers are notorious for trying to order appraisals when they should know better. The law requires that the lender request the evaluation on commercial real estate deals – no exceptions!
Tip #8. Insist on a term sheet
Keep your fee money until the lender releases a term sheet, which is a letter that outlines the terms of the loan in detail.
Tip #9. Prepare for toxic report cost
The lender will insist you hire professionals to do an environmental study on the site before they loan you a dime. The toxic report is expensive, but a necessary evil that protects the lender as well as the purchaser.
So, there you have nine tips to get you started. Now, go out there and conquer the commercial real estate world!