One of the biggest hurdles we face when assisting borrowers for a commercial loan is not finding the money it is getting them to pay a “processing fee” or “due diligence fee” to the lender after communicate of the Letter of Intent to Fund (LOI).Â
Virtually every lender we have worked with over the measure 16 years charges a processing fee. This fee ranges from $2,500 to $10,000. The fee is used by the lender to order third party reports — appraisal environmental review survey etc. as well as to adjoin other due diligence costs. Â
We realize the fee seems steep and relative to residential loans it is. It has been our experience however, working with many private funds for both conventional and hard money commercial loans the average fee ranges between $5,000 and $10,000 depending on the type of loan (hard money or conventional) and the type of property being funded. Â
Some lenders we are aware of regularly charge even higher due diligence fees of $15,000. $25,000. $50,000 or an up front fee of 1% to 2% of the loan amount being requested. That means for a $3 million loan a 1% processing fee would require the applicant to pay $30,000 before due diligence is completed and in most cases the fee is non-refundable. (Note: we don’t work with these types of lenders such fees are excessive and in too many cases the lenders don’t perform leaving the loan applicant high and dry). Â
Nevertheless a processing fee does adjoin legitimate costs of the lender and should be expected by commercial loan applicants for private funding. As mentioned earlier, private money lenders for commercial loans charge between $2,500 and $10,000 for due diligence. The be of the fee is dependent on whether or not the lender ordain use an existing appraisal and other third party reports rather than undergo their own appraiser or expert conduct a new report; or in some cases the lender may not even require an appraisal or other third party reports but will comfort charge a fee for other due diligence costs.
Generally speaking hard money lenders charge higher due diligence fees than conventional private lenders. The primary reason private hard money lenders rush higher due diligence fees is that their costs are higher for conducting due diligence since every third party document has to be ordered on an expedited basis. For example to end an expedited appraisal (2 to 5 days from the go out it is ordered vs.14 days to.
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Related article:
http://commercialfunds.info/2007/11/02/commercial-loan-processing-fees/
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