“Fizbin” in Obtaining a Commercial Loan
Unless you are a Baby Boomer (and you watched Star Trek), you probably have no idea what “Fizbin” is. Feel free to click on this link from an old Star Trek episode. This came to mind this past week as I have been dealing with a financial institution on a commercial loan with a few variables. I was sharing my frustration with a business partner and I mentioned I was experiencing a “Fizbin” moment. They looked at me wondering what the heck I was talking about. Hence why I shared the link above. It is essentially when someone tries to confuse another in a situation with what seems like logic.
Often, whether it is in commercial lending or any other profession, clients and contacts think they can do things themselves versus hiring a professional. In my world, folks may think that they can just contact their local bank and get a loan. By the way, they may be able to do just that. However, can they do it and be protected? Will they understand the terms? Will they know if there are much better options from other financial institutions? How will they know if someone is actually there to protect them?
I am sure you get the point. Now back to my lovely “Fizbin” reference. Please understand that getting the best terms for the client’s needs is extremely important. However, along the way, there are many potential “gotchas” that exist. That is why they hire professionals to block and protect their interests. In this past week’s experience, I found that the financial institution provided the terms as discussed. However, in their commitment letter, it became evident that they were putting the client at risk. Now the institution tried to make it seem like it was no big deal; and that the client would be just fine.
Nevertheless, it became apparent that the proposed loan offer put the client at major risk. The loan amount offered was already pushing the client to provide a higher down payment. In addition, when one read the fine print, there was very little wiggle room when it came to this whole deal. The financial institution wanted a rate lock with a large non-refundable deposit; and they also had the numbers so constrained that it would be easy to have the loan amount end up being lower than needed. Now add in that this would also put the client’s deposit at risk.
The bottom-line here is that there was lots of jargon and hidden risks to the client. If they were to do this on their own, then they would be exposed to risks that they ordinarily would not take if they fully understood the ramifications. And that takes me back to why we should do what we do. Doing what each of us does daily allows us to protect clients in ways that are often overlooked. Some clients understand this and others do not. Maybe we need to provide more stories of hidden risks. All I know is I see my role as part of a team to always protect the best interests of the client.
This mantra comes up all the time. And, to the professionals that have the same approach, then I am a big fan. Of note, I am fortunate that this client and the Commercial Broker on the deal are all in. We are all working to ensure the end result fits the client’s needs.
Anyway, enough of this. But I must say I definitely felt this was a “Fizbin” moment.
Back on the January 15th update, I wrote about “Creating Residential Listings Using Commercial Opportunities.” Each week, I am presenting some of those investment opportunities to better educate all on what is actually available. Note that these are all Single Tenant Net Leased properties that have listed in about the last 10 days. In addition, I assumed a 5% loan with 50% down. This is just a small sample of what is actually available.
If you assume investors in the Bay Area are getting a cash flow of 3.5%, then you can see the potential improvement with these properties above. This approach is great for the investors desiring increased cash flow, an opportunity to get out of daily property management, and/or taking the challenges of rent control off the table. Should you wish to discuss any of these or others, then give me a call.
That’s it for this week. As always, feel free to give me a call with any of your strategic financing needs.
Articles of Interest:
NREI reported “Multifamily Rent Growth Stalls in Top Markets.”
Curbed shared “San Franciscans moving to Sacramento, Seattle, Las Vegas.”
The SJ Mercury News reported “Nearly half of Bay Area residents say they want to leave.”
|Apartments||4.350% – 4.740%||3 to 10 year (30 yr amortization)|
|Commercial||4.495% – 5.040%||3 to 10 year (25 yr amortization)|
|SBA Lending||Call for Options||Call for Options|