Commercial Mortgage Trade-offs

Two Relevant Definitions of "Trade-off"

There are two primary definitions of "trade-off" that are relevant to the points made below.

• Giving up one thing in return for another.

• Balancing of factors that cannot be maximized at the same time.

Examples of Commercial Mortgage Trade-offs

We see the concept of "trade-offs" in commercial real estate loan decisions every single day. The most common application is when a lower interest rate is given up in return for more favorable terms such as a longer loan (25-30 years instead of 3-5 years). Because these trade-offs are by no means obvious to the typical commercial borrower, perhaps the most important function that AEX Commercial Financing Group performs for its clients is a thorough analysis and explanation of the various trade-offs involved in each commercial real estate loan that we provide.

We are very strong advocates of using the Stated Income approach for commercial real estate loans. But due to "trade-offs", we still find it necessary to use other approaches at times. For example, we currently limit our Stated Income business loans to $2 million, so for larger loans we use our Conventional Commercial Financing Program. For a loan under $2 million, a commercial borrower would have a choice between our Conventional Commercial Financing Program and our Stated Income and Assumable Business Loan Program. This would represent a classic illustration of analyzing "trade-offs" between one program and the other to determine which is best for a particular situation.

It is critical that this analysis involve more than just the underlying interest rate for each program. In fact, one of the most important lessons to be learned from a thorough analysis of "trade-offs"is that the lowest rate is ALMOST NEVER associated with the best deal for the commercial mortgage borrower. As you might imagine, this is extremely hard for most commercial borrowers to understand and accept. Most lenders take the easy way out and sell the lowest-rate loan to their commercial borrowers because it is an easier transaction, but this approach rarely results in the commercial borrower getting the business loan that they SHOULD have. AEX Commercial Financing Group has chosen to take the more difficult path which clearly involves a more hands-on approach with our clients to ensure that they understand all of the "trade-offs" associated with their business loan choices.

Most borrowers think that they NEED the lowest possible interest rate without realizing what they are truly giving up in order to get that rate. As we stated above, we strongly believe that the loan terms given up in exchange for the lowest rate are MUCH MORE VALUABLE to the commercial borrower than the lowest rate.

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We spend as much time as necessary with each of our clients to ensure that they fully understand these "trade-offs" before making their final commercial real estate loan decisions. AEX Commercial Financing Group specializes in quick closings for difficult commercial real estate loans from $100,000 to $25 million throughout the United States.

About AEX Commercial Financing Group

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