When the Lowest Rate Isn’t the Best Value for Commercial Mortgage Borrowers

Your commercial mortgage clients are faced with a dizzying choice of loans and products when it comes to financing — while they may be familiar with the names and possibly even some of the terms for each of the products, they still often don’t understand the differences between loans and which would be best for their unique needs.

No matter the experience level of the borrower, one thing they often have in common is that they want the lowest rate possible. Unfortunately, this preoccupation with interest rates tends to minimize all of the value that you can bring to the table.

The simple truth is that the lowest interest rate does not always equate to the best value when it comes to a commercial loan.

Here are some key questions you can ask yourself to determine whether or not your borrower may require a loan with a higher rate that ultimately delivers a greater overall value.

1. What is the borrower’s motivation for financing?

Your client’s motivation will tell you a great deal about the type of rate they should expect with their commercial loan.

For instance, a borrower who has improved their credit score and is now looking to refinance a hard money loan may justifiably be committed        to locking in a lower interest rate.

On the other hand, a borrower who is looking to take a significant amount of cash out of their property may need to accept a higher rate. This          is due to the fact that the lenders with the best pricing, like banks, often won’t approve cash-out refinance requests.

2. How much documentation is the borrower willing to provide?

If your client wants to lock in the lowest possible interest rate on their commercial mortgage, they should be prepared to submit the full                  amount of documentation when applying for the loan. This includes tax return documentation, which can be a major stumbling block for                business owners and investors.

Borrowers who are unable or simply unwilling to provide tax returns certainly do have financing options, but most will come with a slightly higher interest rate.

For many borrowers, especially self-employed entrepreneurs and real estate investors, a higher monthly payment is a small price to pay for the ability to get approved for mortgage financing.

3. Is the commercial property regularly listed as “ineligible” within bank guidelines?

Traditional lenders typically offer the lowest rates – but they often have the tightest restrictions when it comes to eligible property types.

This isn’t an issue for borrowers looking to finance the most common commercial property types, like multifamily, office, and retail spaces.  But certain properties, such as those housing automotive or restaurant/bar businesses, carry increased environmental or turnover risk that traditional lenders wish to avoid.

Again, lending options do exist for these borrowers, but likely not at the lowest bank rate.

If you gain a better understanding of your borrower and their loan request, it will become easier to identify solutions that best meet their unique set of needs.

4. Does the borrower require a fast closing?

Borrowers will naturally want their loan to close in the shortest amount of time possible.  But they will eventually have to choose whether or not they’re willing to trade a fast closing for the lowest possible rate.

That’s because the lenders that offer the lowest rates, like traditional banks, can take several months to close commercial loans.

Here are 2 instances where a borrower would likely choose a faster closing over a lower interest rate:

  • The borrower needs to refinance a maturing commercial loan. If your client has a loan that includes a balloon note at the end of the term, they will be greatly incentivized to refinance before the loan matures. If they are running short on time, they would likely choose a faster closing over a lower rate.
  • The borrower is trying to purchase a property before the seller puts it back on the market. In these cases, the borrower will miss out on owning the property if they cannot secure financing in time.

Once you get these questions answered, you’ll have a good idea of the rate range your borrower should expect for their commercial loan.

The good news: even if your client’s needs don’t match up with bank guidelines, they can still secure an attractive commercial loan that positions them for long-term success.

That’s because Silver Hill Funding, LLC offers the best of both worlds – increased flexibility AND competitive rates.

Here are a few of the main instances where Silver Hill makes sense for investors and business owners:

  • The borrower is unwilling or unable to produce certain documentation (tax returns)
  • The borrower wants to take out a hard money loan with a longer-term solution
  • The borrower needs fewer restrictions on a cash-out refinance
  • The borrower is unable to meet other lenders’ seasoning requirements
  • The borrower can’t qualify for bank or SBA programs but wants to avoid hard money interest rates

With interest rates starting at just 6.375%, Silver Hill is able to meet a greater number of borrower needs while still keeping costs down.

If you’d like to offer Silver Hill loan programs to your commercial mortgage clients, connect with one of our Regional Managers today.  They’ll walk you through our loan programs and give you the information you need to close more loans in your market.

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