Discussion on Commercial Loan Costs
Learn About Common Commercial Lending Underwriting and Closing Costs
Costs suggested below are not actual quotes--actual costs and fees may vary.
Your deal may not require all these fees, but our clients should expect to pay for some combination of the following costs depending on the type and nature of their funding request and lender requirements.
Some of the fees incurred are due prior to the lender commencing underwriting. The initial deposit can range from $500 – $25,000 or more depending on the loan size, lender, and program. These fees normally include out of pocket expenses that the lender will incur for legal, appraisal, underwriting, and due diligence for processing the loan request.
Credit Report Lenders usually request a copy of the requestors credit report to review credit history and ultimately determine if they should risk lending you money.
Appraisal/Valuation Since the commercial appraisal/valuation process requires a certain level of knowledge and experience with a particular type of business, property and market area, lenders will typically only accept appraisals from one of their tested and approved partners. Commercial appraisals take between 2 and 3 weeks to complete and the costs range depending on the deal.
Environmental Report Testing for dangerous contaminants. Investigators will research past tenants and prior uses of the property to determine suspicion of contaminant use. In addition, they’ll look for evidence of pollution by examining the adjacent land. If there is indication of contamination, investigators will research past tenants and prior uses of the property to determine suspicion of contaminant use.
Building Inspection Report This is usually paid before closing as well. This can cost between $500 and $5,000, depending on the state and property size.
Buyer’s Attorney Fee (Not required in all states) This fee is paid to the attorney who prepares and reviews all of the closing documents on your behalf.
The other expenses involved in the financing of a commercial transaction are closing costs. These are due at the time of funding of the loan and can be included in the financing. These costs are usually the origination fee, property insurance, title insurance and title related expenses, property insurance, and escrows for property taxes.
Origination Fee Lenders may charge a fee for originating the loan. Origination fees are usually a percentage of the total loan. For example, if the origination fee was 1% of a $200,000 loan, the fee total would be $2,000.
Commercial Property Insurance This cost protects you and the lender if there is ever any damage to your property. The costs range from state-to-state and depends on the value of the property.
Legal Fee for Lender o Lenders can require the borrower to cover reasonable legal fees and costs needed by the lender to complete funding. This fee amount ranges depending on loan size and details of the loan and/or property.
Underwriting Fee This fee is charged by lenders for preparing the loan and all of the associated paperwork. This fee amount depends on the size of the loan, type of loan, and lender’s program.
Title Insurance This fee is associated with loan policy, loan endorsements, and settlement fees. This generally protects the lender from liability with inadequately performed lien or title searches.
Broker Fees Broker fees can be a percentage of the transaction, a flat fee, or a combination of both.
Closing Fees This fee is paid to the lender for conducting the closing. This fee ranges depending on state and the lender.
** Slightly adjusted for our customer base from an article by author Zack North: As a regular contributor to a number of top industry publications, Zack enjoys writing about topics that help investors and business owners approach commercial mortgage financing with confidence