Do You Charge Any “UP-FRONT” Fees?
As Independent Alternative Lending Consultants we are paid a success fee due at closing. This fee will be included in the lender's or investor's points. If you don't get funded we don't get paid, its that simple! There are however real costs incurred by the lender or investor necessary to perform proper due diligence on your project. These fees will be required before the lender or investor funds your project.
Do all lenders charge due diligence fees?
Short answer, YES!
These Fees are not to be confused with any ”UP-FRONT” RETAINER, PROCESSING, REFERRAL, OR ANY OTHER FEES REQUESTED BEFORE A BORROWER'S APPLICATION IS SUBMITTED AND A FORMAL COMMITMENT LETTER OR LETTER OF INTENT IS DRAFTED BY THE LENDER OR INVESTOR AND ACCEPTED BY THE BORROWER.
This formal commitment letter or letter of intent is in essence a borrower's pre-approval letter contingent upon the facts and viability of the project being verified by the lender or investor. This is where the due diligence process becomes necessary.
The due diligence process may encompass:
Credit and background checks on all principals and management team.
Investigating the financial background of all principals (personal and corporate).
Physical “on-site” inspections.
Detailed review of the title, property survey and other legal documents related to your property.
Review of historical operating financial statements.
Detailed review of your prospective business plan for your project.
Conducting feasibility studies.
Review of all required entitlements, permits, licenses and approvals.
Hiring industry consultants to help evaluate the potential risk of the investment.
Consulting of lawyers for legal matters and preparation of legal contracts.
Environmental assessment reports.
Third party structural and engineering reports.
Because of the uncertainty in today’s market, lenders and investors are really doing their homework before they commit funding to a project. The issue that the lenders and investors are experiencing is that it takes more time and money to conduct proper due diligence than it has in the past. Unfortunately, sometimes they discover the prospective borrower has misrepresented the deal and their financials. Hence, they have expended a lot of time and money on a project they fully intended on funding and find out it’s not what was represented on the front end. Their solution is to sift out who is real and who is not. The lender or investor will charge the prospective borrower BEFORE FUNDING for the due diligence costs and may reimburse them at closing.
Lenders and investors are interested in making profitable investments therefore funding sources will not use their own funds to investigate a project and operate at a financial loss. Investments are about calculating the amount of perceived risk and managing that risk. The due diligence process is about a potential lender or investor finding out about the company seeking funding, the members of its management team, and analyzing if the company is a potentially profitable investment. The Lenders' or investors' due diligence fees occur before closing and the Applicant is expected to pay these expenses at the acceptance of a formal Letter Of Commitment or Letter Of Intent and before the funding source begins its due diligence process.
If a client is not prepared to pay this due diligence fee, then funding sources will not work with them, this is NOT NEGOTIABLE. Funding sources do not give millions of dollars to companies without a due diligence process beforehand. This is not only common sense it is good business sense. Go to a bank, apply for a loan, and see if the bank has you fill out forms, answer many questions about yourself and your company and pay fees related to applying for a loan, before you receive any money, then you'll better understand the due diligence process.
For any potential borrowers that believe otherwise:
If you know of a lender or investor whom does not require any due diligence fees before a hard money/commercial or any other alternative investment loan of $100k+ is funded, We are willing to offer you 50% of our success fee for any and all subsequent loans funded by said lender or investor for simply providing us with an introduction!!!! This will be offered in writing!!!!