Make these critical questions part of your due diligence

Most borrowers focus on the interest rate and other costs when searching for a loan. But other factors may be as important—or even more important.

The Deal

    • $3.09M Project Loan and 1.91M Construction Loan in Brooklyn, NY
    • Loan Policy: $14,202.00
    • Mortgage Tax $45,209.55
    • Multiple Documents: $1,500+

Guest Insights: Meridian Capital Group

Before agreeing to a deal, ask a prospective lender these five questions.

What does the lender require? Personal guarantees, performance requirements, draws based on milestones, reporting requirements, and other conditions may be acceptable or so onerous that the loan requires serious second thoughts.

What is your recourse? Even a supposed “non-recourse” loan typically has carve-out guarantees, and some can be significant, such as a back-end guarantor requirement or a provision that a building must be fully leased before the guarantor is released from obligation.

Who are the real lenders? Lenders often supply a single debt sheet for construction loans, even if they’re only keeping a portion of the loan. Make sure you know who the other lender(s) is/are, whether you’ll be reporting to them as well, and if they have any requirements that differ from the first lender.

How is the lender capitalized? Will your lender draw from a fund, a bank, or discretionary capital from investors? If things go sideways, do you feel confident that the lender will fund the loan? If they lose investment backing, for instance, how will you get the loan? Make this part of your due diligence.

What is the lender’s reputation? Always deal with someone who’s known and trusted in the marketplace. Ultimately, the partnership and process are as important to a project as the rate you’re paying.

If you have any questions about financing or potential title issues, or if you would like to discuss an upcoming or prospective transaction, please contact us.