Five Factors to Consider
Interest Rates
Higher interest rates can significantly increase the cost of commercial mortgages and loans. This can discourage some borrowers from acquiring new properties or expanding their businesses. During periods of historic low interest rates, however, your clients may be willing to take on new debt to achieve their business goals. Keeping a close eye on commercial interest rates can help you provide the best guidance for your clients regarding these lending arrangements.
Fees
Upfront fees and closing costs can sometimes discourage borrowers from taking on new debt. Explaining all the commercial loan terms and requirements at the outset can prevent unpleasant last-minute surprises that could derail the lending process. When your clients understand the purpose of these fees and the ways in which they benefit borrowers, they are often much more amenable to these added costs of acquiring commercial loans.
Length of the Loan
Depending on how the loan is structured, borrowers may be required to make a significant lump sum or balloon payment after just a few years. Longer loans with fixed interest rates represent a smaller annual investment and may be more attractive to clients looking for an affordable way to expand their real estate portfolios. Balloon-payment loans, by contrast, are much more affordable during the first years of the loan. These lending arrangements must typically be refinanced or paid off when the balloon payment comes due in the future.
Collateral Requirements
Most lenders will require collateral for commercial mortgages or other business loans. For mortgages, the property to be purchased is often used to secure the loan and protect the lender against loss. Lending institutions may also require collateral for sizable business loans not used for the purchase of property. Your client’s business premises, equipment or other items of value may be used as security in these cases. Providing your business clients with expert guidance on the types of collateral likely to be accepted by banks and lenders can streamline this process and inspire greater confidence in those you serve.
Credit History
Businesses with limited or bad credit histories may find it difficult to obtain loans or may be offered commercial loan terms that feature high interest rates and significant collateral requirements. In some cases, it may be advantageous to build a solid business credit rating before seeking a sizable loan for the purchase of new property or for corporate expansions. Some lenders cater to businesses with poor or no credit histories, however. By applying with these financial institutions, your clients can often get the funds they need while building a solid foundation for future success.
Taking the time to put yourself in your clients’ shoes can often provide you with added insights into the best ways to sell commercial loans to these businesses. This can allow you to enjoy greater profitability while improving the financial position of your clients in the competitive marketplace.
To find out what your borrower qualifies for when requiring a commercial loan in California, fill out our Loan Inquiry Form at ReProp Financial, where we fund loans direct! ReProp Financial funds commercial loans for the purchase or refinance of retail, office, mixed use, light industrial and many other types of property
