Commercial Lender Red Flags

Be careful if you see any of the following red flags from your lender.

  • Bait and switch. This is when a lender will give you one set of terms in a letter or verbal quote in an effort to get you to exclusively work with them. This takes other bankers out of the running. Because of the time you will spend with a lender, you are unlikely to switch to another lender once you have submitted all your paper work. You are even more unlikely to switch if you have to start the process over which could be 30-60 days of work. Some lenders will do this by accident; other lenders use this as a tactic.
  • No communication via email or phone calls is typically a bad sign. You don’t want to badger the lender each day, but you should expect regular updates as to the status of your loan.
  • Overly confident bankers. If your banker is painting a bed of roses for you, be careful.
  • If the rates and terms are unbelievable, they probably are. Make sure what you are offered is competitive within the market place. If it seems too aggressive, this should be a red flag.
  • Large deposits up front. Some brokers/lenders will take a large packaging fee or deposit when you submit your loan package. Tread carefully here. If this fee is not refundable, be even more careful no matter how convincing the contact/person may be.
  • Quick turn around time. Commercial loans take time. If you submit a loan file and have an approval the next day, you might be dealing with a bad lender. There are “fee shops” in the commercial lending environment. These shops produce letters, take a fee and then never fund your loan.

Hiring an expert to help you navigate this environment will help tremendously in avoiding pitfalls and setting correct expectations. This list is not exclusive to all the red flags in the industry, but they are the major ones.


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