Small Commercial Loans – What’s the Problem?

What’s the problem with small commercial loans? Or maybe more accurately asked, why do so many banks and brokers avoid or ignore working on them?

There’s a couple of reasons. The main one and this maybe hard for borrowers to understand or appreciate is that there just isn’t a lot of money in a loan less than $1,000,000 for these professionals. The loans come with all the same work and yet promise a much smaller payday for all involved.

The process to review, underwrite and close is the exact same regardless of the loan size. In fact, small commercial loans are often more work. This is also very difficult for the borrower to understand or even believe. The main problem here is that many small commercial loan borrowers are often less organized than larger organizations. Getting these borrowers to provide documentation can be tough. And it’s not just that some small business owners are unorganized. It’s often the case that they don’t have the resources or staff to get all the required documentation in place. Regardless, the professionals involved can spend a lot of time chasing borrowers.

Besides the money and lack of efficiency the other main issue is that there are simply not a lot of sources out there for small commercial loan less than $500,000. So borrower will find that many banks or lenders will not even look at their request if below that minimum. If the borrower decides to work with a broker, they will still face the same issue. Hopefully for the borrower the commercial mortgage broker will be knowledgeable and aware of the small commercial loan options out there.

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