Know Your Banker

This seems like an obvious statement; however, digging deeper there are a number of issues that can impact your borrowing as you work through the process. Is the loan a size that your contact can approve through his office? Does your contact need to review your loan through Loan Committee? Is your contact on the Loan Committee? Ask the questions and understand what your contact is able to approve or NOT approve.

The Devil is ALWAYS in the details

Once you have secured a Term Sheet outlining the general agreement of your Commercial Loan and have selected the Lender you will be provided the Loan Agreement. This is an agreement you should focus on NEGOTIATING. Is there a penalty for prepayment of the loan even in a sale of the asset? If you are being provided construction financing that then goes into a permanent loan how long is the Interest Only portion of the construction financing? What is the Debt Service Ratio, the relationship between the monthly income to the monthly debt, and when does this trigger the beginning of principle and interest payments.

What Does Your Future Look Like

You may be an experienced borrower with years of commercial real estate investment activity or just starting out. A question for your prospective Banker is what is your total capacity with my firm? Most banks have some limit or capacity with any one borrower. Is the limit $5mm, $10mm, $50mm? Depending on your long-term plans you may out grow the relationship. You can always use multiple lenders and there are advantages to having lenders compete for each deal. There is also an advantage to having a relationship you can go to where there is an established trust and deals can be “green lighted” quickly

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