Suppose you’re new to commercial real estate (CRE) investing or want to acquire a commercial building to use for your business operations. In that case, you’re probably wondering if you should work with a commercial real estate loan broker to get the best terms and rates. The answer is yes—it’s always a good idea to consult a professional. CRE mortgages are not as easy to find and qualify for as home loans. You can’t simply walk into your local bank and get a mortgage to buy a commercial property. It’s not that easy.
Here’s the reality: Unless you have a perfect credit score, a history of fantastic revenues year after year, and substantial equity in the CRE property you want to buy, your chances of getting the approval of banks may be elusive. And even if you find a lender willing to provide you the money you need, the rates and terms will probably be unfavorable. They might even impose a lot of restrictions and substantial prepayment penalties.
The good news is that a commercial real estate mortgage broker can help you get a loan that fast meets your goals and requirements. This is why seasoned investors who want to refinance or purchase CRE assets routinely use brokers. These professionals have the knowledge and the skills it takes to get the best mortgage rates. They also have lots of connections and a vast network of high-quality commercial real estate lenders specializing in different project sizes and risk profiles.
This blog will talk about what a commercial loan broker is and their role in the CRE lending process. Read on so you can decide if working with one makes sense for your situation.
What is a Commercial Real Estate Loan Broker?
A commercial real estate mortgage broker is a financial specialist with training and expertise in securing a commercial mortgage for investors and businesses. They can present the best options based on your goals and the nature of your project, and then provide the services you need to apply and get approved for a loan.
Business owners and CRE investors looking for commercial mortgages seek out brokers for advice on the best course of action to get funding. A will broker also inform you (the borrower) of the lending options available, and then prepare the paperwork and negotiate terms and rates on your behalf.
When you apply for a commercial property mortgage from a single bank, you limit yourself to just that one lender. But when you let a commercial real estate loan broker handle your project, you can get access to dozens of commercial lending options.
Why should you work with a commercial real estate mortgage broker?
- Knowledge: Unless you have a solid background in CRE financing, you simply can’t know everything there is to know to navigate the funding process and successfully secure the most favorable rates and terms. This is where a good mortgage broker comes in. They will listen to your needs and requirements to match you with the right financing facility. The best brokers can even completely customize a loan package based on your unique circumstances.
- Expertise: The CRE funding scene is ever-changing and dynamic. A good broker stays up to date on the latest lending trends and regulations to present their clients with all the options available. They also know exactly how to make your application look good in lenders’ eyes to increase your chances of getting approval.
- Network: Another benefit of hiring a great commercial mortgage broker is getting access to their connections to different types of lenders that you would otherwise never even hear about. The best brokers can submit your project to many lenders and have them compete to give you the best offer. They will tirelessly work to get you the best rates and terms. After all, even a point or two can translate to hundreds of thousands in savings.
Aside from this, a good commercial real estate loan broker also has good relationships with the decision-makers (the underwriters) at the lending institutions in their network. This is very important because a stable brokerage relationship is often the key to getting a loan over the final hurdles and ultimately getting approval and funding.
Are there any drawbacks to working with a commercial real estate mortgage broker?
Brokers have to make money, of course, and they do so by charging fees to their clients. This can be in the form of packaging service fees or “success fees” paid once funding is approved. Some brokers charge fees upfront to the borrower at the start of the process. Be sure to ask if this is refundable if your loan is rejected. Additionally, many brokers also charge borrowers an amount equal to a certain percentage of the loan upon the release of funding papers. These fees vary from broker to broker. Some will not charge you any fees at all because the lender compensates them. No matter what the case, always ask about fees right away, and make sure you understand everything.
Some brokerages require clients to commit to an exclusivity period that gives them full rights to provide the client with a loan exclusively. During this period, the client-borrower cannot work with other brokers. Should they obtain financing by themselves, they will still be contractually obligated to pay the broker a closing fee.
Finally, as a borrower, you probably want to know where your broker sends your loan documents and other information. Unfortunately, many commercial mortgage brokers blast sensitive financial documents to multiple lenders at once—some of them being unvetted. This can potentially put your personal information in the wrong hands. You can avoid this by telling the broker right away that you are not comfortable with this practice, and that you want to know exactly where your papers end up.
What are the types of commercial real estate loan brokers?
Brokers specialize in different types of commercial mortgage loans. The right broker for you depends on the kind of loan you are interested in.
- Bank loan brokers work with conventional banks—large and small. Only a handful of traditional lenders pay their brokers success fees for completed loans, so most bank loan brokers get compensated by the borrower. You will probably need to pay a fee at closing. Make sure to clarify this before moving forward.
- SBA mortgage brokers have expertise in lending programs from the Small Business Administration, particularly SBA 7(a) and SBA 504. Be sure to choose an SBA mortgage broker with access to a network of SBA lenders specializing in commercial real estate and can provide lending options in your part of the US. Brokers in this category can charge maximum of $2,500 for packaging services and up to a 3% success fee when the loan is funded.
- USDA mortgage brokers work with business owners in rural areas who want to get commercial property mortgages using banks and lending institutions backed by the USDA.
- Subprime mortgage brokers help borrowers with less-than-stellar credit who want to obtain mortgages for their commercial properties. Subprime commercial real estate loans can either be long-term loans or short-term funding solutions, such as hard money loans, bridge loans, or second mortgages.
- Hard money loan brokers are financing specialists with networks of private lenders that focus on providing loans secured by the borrowing party’s commercial real estate. They specialize in higher-risk financing.
As you can see, there are many lending options for commercial property buyers and investors—and each of them has various requirements. If you’re searching for a CRE mortgage and want to understand your options, navigate the process, and ultimately find the right lender, then it’s a good idea to work with a commercial real estate mortgage broker.