When it comes to purchasing or refinancing a commercial property, both seasoned veterans and first-timers are likely to begin the process by conducting a fair amount of research on the type of loan they will need to secure.
This first step is a smart one, especially if the prospective borrower is hoping to find a solution that meets a unique set of needs. But those who seek information regarding loan types, payments, and best practices are likely to run into a number of common commercial mortgage myths before long.
These can take the form of outdated statistics, personal opinions disguised as facts, or one borrower’s experience disguised as a general practice.
Before you dive into your research, make sure you can identify the following 3 commercial mortgage myths.
Myth #1: Lender options are limited
Business owners and investors who only consider banks and hard money lenders to be viable options are missing out on a wide range of potential lending solutions. In fact, settling for a hard money loan after facing a bank rejection can end up being a very costly mistake – especially if the borrower falls just outside bank eligibility.
Between the bank and hard money ends of the spectrum are a wide range of non-bank alternative lenders that offer increased flexibility at reasonable interest rates. Many of these lenders offer program tiers that are designed to make it easier for non-bankable borrowers to qualify.
Prospective borrowers looking to take advantage of these types of programs should first identify their specific set of needs. Then they can more easily compare the variety of options that exist in today’s market.
Myth #2: Banks always offer the most attractive options and terms
Banks will typically offer the lowest interest rate, but there is no guarantee that they will provide the most value for a prospective borrower. That is because value is purely subjective when it comes to commercial mortgages.
For many business owners and investors, flexibility is king. Others value transaction speed above all else. Still others are primarily focused on the amount of documentation a lender requires. These types of borrowers often find that, despite the low interest rates, bank programs are ultimately too rigid to meet their needs.
At the end of the day, the “best” loan program is the one that puts you in the best position to achieve your specific financial goals.
Myth #3: The commercial mortgage transaction process is overly complex
It is true that the transaction process for a commercial mortgage loan involves a greater number of moving parts than that of a residential home loan. The property types involved – like warehouses, retail strip centers, and offices – are less homogenized in nature, which in turn creates a more drawn out appraisal process. A lender’s underwriting team also has more work to do since they must analyze not just the borrower but also the property’s ability to generate revenue.
But borrowers can avoid unnecessary delays and complications by submitting a complete application and actively communicating with their lender throughout the transaction. Even something as relatively minor as providing a full set of detailed property photos can save time as a lender works to approve a loan request.
Zack North is the Director of Marketing for Commercial Direct. As a regular contributor to a number of top industry publications, Zack enjoys writing about topics that help investors and business owners approach commercial mortgage financing with confidence.