5 Ways to Decide Which Loan?

Every loan is a little different from the next. Here are five things to consider when evaluating your options.

1. What are your plans for the property? This is the number one thing I try to determine when I meet with clients. Do they want to pull some equity out, hold the property long term, or flip it in a few years? Each of these scenarios will require a different loan structure, term, prepayment, etc.
2. How much cash flow do you want? Your cash flow will be determined by the loan amount, amortization and the interest rate as well as any reserves that are collected.
3. Will the loan have recourse? Recourse means that the lender has the ability to take anything of yours, in addition to the building, to repay the loan in full. Non-Recourse means the lender can only take back the building if you default on the loan. There are consequences with both recourse and non-recourse loans.
4. What type of lender do you want? There are many types of lenders. Click here to read a discussion on the various types.
5. Does the lender require reserves? Some lenders require you to keep a tenant improvement, leasing commission, tax or insurance payments in a reserve account held by the lender. This can be funded when the loan closes or payments can be made along with the regular loan payment. Other lenders require some or no reserves.

This isn’t an exhaustive list, but is a good way to get started when comparing different loans.