Cash flow increase is $2,704 per month or $32,449 per year while the cost to close the loan is high at $83,500 due primarily to the prepayment penalty. The borrower is facing a closing cost payback period of over two and a half years. In addition the interest rate has gone up considerable on the proposed loan, which of course increase the overall cost of the Short Term Commercial Loans.
Not an easy decision for the borrower. The option to go forward would probably rest heavily on the borrower’s opinion of where the future interest rates will be when the prepayment period ends.
It is interesting to note that the borrower would be able to increase his loan amount to $2,333,964 (cash out proceeds would be approximately $598,000) if he choose too. This is due to the increase in cash flow. The building Debt Coverage Ratio would improve to a 1.54 – the typically minimum is DCR is 1.2. If the borrowers intent was to pull cash out of the property to inject into another property (or for any other reason) this would probably be a much easier decision to go forward with the loan.
Retainer fees are “standard business practice” for some (but not all) commercial loan situations. It is understandable that a commercial borrower would rather not pay such a fee, so it is important for a commercial borrower to understand when it is more likely to be necessary. In fact a business loan retainer will not be necessary in many business loan scenarios. This is especially true of commercial financing such as business cash advances that takes less time and produces funding within just a few days.
For more time-consuming commercial loan processes, it is increasingly common for a retainer fee to be paid during the preliminary stages. This is especially true when working with business loan consultants that specialize in commercial loans. Most advisors who work with residential mortgage loans (and perform commercial loans as a sideline to their main business activities) will not charge a retainer fee because in many/most instances they are legally prevented from doing so by certain state and federal regulations (in other words, it is likely that they too would charge a retainer fee if not legally prohibited from doing so because of prevailing residential loan compliance issues).