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Pros and Cons

Clearly, a commercial loan can have great benefits in the flexibility they offer.  However, that benefit comes at a price.  The interest charged by the lender tends to be the highest rate available, resulting in a very expensive price tag for what is usually a short financing benefit.  Then again, if the interim financing is what is needed to get to the next step for the project’s completion, that flexibility benefit can mean success of failure for a project literally.  So cost is relative. Commercial loans are easily the fastest large financing to secure in terms of the little time involved to reach approval. For time-sensitive situations, this factor can again make a difference, depending on the project’s circumstances.

The downside of commercial loans is their wildly changing nature from lender to lender.  Due to not being overseen by lending regulations, the private industry has quite a bit of predatory lending within its ranks.  Additionally, the playing field is definitely not level.  Since commercial lending relies as much on networking through brokers as it does having the right collateral, who you know can matter more than what you can guarantee. 


Business financing deal

Many parties can find themselves entirely locked out of the commercial lending environment where a few savvy players can land wonder deals for their projects.
Additionally, the more hands in the cookie jar, the more expensive the cookie.  While brokers definitely produce results with their inside connections, they add another cost layer to the loan, adding up commissions and loan points on the borrower for producing.

Other commercial lenders and brokers take fees up front without providing any confirmed services.  It’s not uncommon to find lenders who charge for the time to look at a prospect without ever providing a loan or benefit for the money taken. Again, since there is no regulation of the matter, it is only enforced via general contract law between the two parties involved.  Caveat Emptor (Buyer Beware) is the rule of the land, and if a borrower doesn’t do their homework, they can easily find their project and their wallet out of cash, to the benefit of a cheating broker or commercial lender.

Copyright 2009