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Search Loan rates?
There is currently a genuine state of confusion regarding commercial loan rates. The confusion is not just restricted to borrowers, either. Brokers, lenders and professional investors are all struggling to get a handle on what is going on with commercial loan rates.
Borrowers are under the impression that we’re at historic lows. They hear about the feds lowering rates and also hear national banks quote ridiculously low rates. What these national banks aren’t advertising is that their decline rates are at historic highs. Is difficult to be able to track a statistics like this but my friends and associates that work at intuitions like Bank of America, CITI etc tell me that there decline rate are at 95% or so.
So what that means is that they are cherry picking to an incredible degree (can you blame them?). The low commercial loan rates that they are advertising are only relevant for 5% of the borrowers that apply. Think about that for a moment, for every 100 people that fill out those 6 page applications, provide their tax return, etc, 95 of them are getting declined. As a comparison the decline rates are normally more like 50%.
The confusion is not just restricted to borrowers but to professionals in the industry as well. The spreads or margin are varying from one lender to the next more than we have seen. People in the business are struggling to understand why. Normally if you were to get 10 quotes on the same deal the commercial loan rates would be within .25 -. 35% of each other. Perhaps a few would tweak the prepayments or term, etc but their rates would be close. Now we are seeing commercial loan rates on the same deal varying between 2% -3%…

Part of the problem is that some of the lenders and banks themselves are having their cost of capital increase. Some of their credit rating are being lowered, as their balance sheets are scrutinised. So despite the Feds lower their rates, the margins that the banks charge (in order to cover their costs, risk and make a profit) go up as their cost of capital go up. So as one bank is more financial healthy than the next its costs of capital varies.
So what’s the happy ending? We currently don’t have one. If you’re thinking of buying or refinancing a commercial property in the next few months we would suggest getting it done now as in maybe a while before things re-stabilize and commercial loan rates become more universal.