If you are like most borrowers, you might feel like you are at a disadvantage when it comes to dealing with commercial lenders. They know more about the process and they have something that you want. But this does not necessarily give them all of the power. In fact, you, as a borrower, do actually have power to wield in negotiations with lenders.
One of the biggest strategies that you have as a borrower is your ability to walk away from a lender. It might not always seem like it, but they want your loan. It is the way that they make money. Even though you are coming to them for the loan, commercial lenders only get paid on loans that are actually underwritten and taken, not on inquiries. This gives the borrower a great deal of power.
The best way to use this power is to play different lenders off against each other. Rather than directly negotiating with a lender, get them to offer better terms by letting them know that you have other options that are better. Commercial lenders are not going to drop their rates and terms easily if they know that they are your only option. This would only cost them money. But, if they might lose your business if they do not adjust to your needs to keep it, they are far more likely to drop their rates without you having to do any negotiating whatsoever.
Another strategy is to front end the majority of your negotiations. Once the application process has started, it is very difficult for a borrower to find any leverage to have anything in the deal changed. But before you sign on that dotted line, the lender does not know if you are going to sign or walk away from the deal. This, again, give you the leverage that you need to make sure that your critical issues are addressed properly by the lender.
Now, this does not mean that you should be terribly aggressive about this tactic. Doing so in the incorrect manner might backfire. So, it is okay to play lenders against each other, but do not go overboard with it. Threatening and being combative is not going to win you any battles in this, and might end up burning you tremendously.
And when it comes to negotiating before you sign the application, make sure that you limit your demands to what is actually critical to you. Decide what this is going in to the negotiation and do not overreach. If you have too many demands, you are likely to upset the lender and working with you is going to look like more of a hassle than it is worth. So make critical demands before you sign that dotted line, but convey to the lender that you are detail oriented and not overreaching.
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.