Shopping For A Commercial Mortgage Can Be Treacherous

By Author: John Tang
Total Articles: 512
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Commercial mortgage borrowers that have been through the process of securing commercial mortgage financing understanding the complexity of the process. For those that are purchasing a property, financing is just one segment of the equation. Borrowers have to deal with cities, brokers, owners, the due diligence processes etc and on top of that have to shop for the best loan, which in and of itself, can be a complicated process and borrowers have a multitude of options.

A very common mistake we see is business owners make is the assumption that they will get the best offer from their current bank. After all, the bank knows the borrower inside and out, there's a history there and at times good personal relationships can exist. Although the borrower may "feel good" about just taking the loan directly to their bank, the reality is that banks often count on this and have the most conservative underwriting guidelines and present the shortest fixed periods in the market.

In addition, all lenders appetite for deals changes over time and often in a dramatic fashion. It is not uncommon, for example to see a lenders quoting ...
... really low rates one month, get "full" than readjust pricing to more market levels the next. Or, just as common, lenders will go after a segment of the market, i.e. hotel loans, or apartment loans etc meet quotas and than either pull out completely or just raise rates to the point out of buying themselves out of the market.

Another major mistake borrowers can make by having their loan with their primary back is a little known (although widely used) provision dubbed the "right to offset". Essentially what this means is that, the bank holds the right to enter your checking/savings account and remove cash to "offset" the balance that is owed on a loan, whether it's a commercial mortgage, line, equipment loan etc. Normally banks only use this right in difficult times for the borrower, which normally is exactly when they need access to cash the most. It is not a bad idea to have more than one checking/savings account.

Also, business owners often pick up the phone and call a few other local banks, essentially just double checking what they've heard from their main loan officer. After getting 2 or 3 quotes from other neighboring banks, that offer the exact same programs, the borrower is pretty much convinced that this is market. However, there are a lot of options out there. For example, there's now a commercial 30 year fixed, second lien position loans and a 5 year fixed SBA 7a Loan that normally turns some heads.