Why we don’t have a long-term lending relationship

Got a call from a lender the other day.

He had seen a loan broker with whom we work shopping one of our deals and was irked that we hadn’t come to him first.

I get where he’s coming from, on one level. We’ve done several loans together, so he feels like he should have first crack at my business.

But here’s the thing: When I let him know what terms we were being offered by his competition, he told me he couldn’t compete. He went back to “but we have a relationship…”

Now, there is definitely a way for a lender to win all of our business, even when his take-out (or permanent) financing isn’t quite the cheapest: He could commit to providing good bridge financing for our projects in exchange for getting the take-out loan, too.

Why would that make sense? Well, bridge loans are short duration (typically 12-18 months), so we’re much more concerned with the lender not being a pain to deal with than we are with getting absolutely the best rate.

A lender who wanted our permanent financing business would simply commit to (i) being our best source of bridge money, and (ii) being easy to work with on both the bridge and the permanent financing.

Then, we would work with that bank, even in situations where they weren’t the absolute cheapest money around.

So far though, neither the banker who called me, nor any of his competitors, has offered the above arrangement. So we shop for the cheapest money we can find.