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At some point in the funding of any commercial loan, the topic of up-front costs always arises.

Years ago it was simple; lenders charged a reasonable fee that actually did cover the expenses necessary to properly evaluate a project for funding. From experience, they had a good idea how much a particular type of project would cost them to review. If they chose not to fund the loan they gave an accounting of what was done, the reason for their decision and they actually returned the unused portion of the due diligence retainer they received.

More recently people have found ways to abuse this system. Some actual investors and other less scrupulous individuals ask for exorbitant amounts of money to “evaluate” a project. Some have no intention of lending against the project while others cut down the value of a project such that the money they will commit to loan will not suffice. Sadly they are involved solely to collect and keep as much of that up-front fee as they can.

Borrowers, aware of this new trend, are becoming more cautious concerning who they deal with and more frugal with the amount of money they are willing to spend to find out if a lender is willing to fund them.

To avoid confusion, and to make every effort not to waste anyone’s time, we have developed a rating system that lets an investor know what a borrower is willing to contribute towards up-front costs. We call it our client’s DDTL™ or Due Diligence Tolerance Level. It is a sliding scale which will give a fair indication as to what the client’s monetary participation will consist of. DDTL ratings are defined below:

DDTL Description
$0 Borrower feels the documentation provided is current and comprehensive and that their project is solid enough that it does not warrant any further investment to an entity that wishes to lend money against it.
$1k - $5k Borrower is willing to cover certain expenses; travel, lodging, transportation, perhaps an updated appraisal if desired.
$6k - $10k Borrower is willing to cover certain expenses; travel, lodging, transportation, updated appraisals if desired.
$11k - $15k Borrower is willing to cover certain expenses; travel, lodging, transportation, updated appraisals if desired, and also some internal costs.
$16k - $25k Borrower is willing to cover all expenses; travel, lodging, transportation, updated appraisals if desired, and also internal costs.
$26k - $50k Borrower is willing to cover certain expenses; travel, lodging, transportation, updated appraisals, specialized reports if required, and also internal costs.
$51k+ Borrower will cover any and all up front expenses necessary to fund their loan.
Negotiable Borrower will cover certain fees to be negotiated between borrower and investor.

[R] – If an [R] appears after the DDTL amount, the borrower will reimburse the investor against receipts submitted that do not go over the agreed upon amount. If no [R] is present, they will give the funds directly to the investor with the understanding that the unused portion of those fees will be returned to them.

Examples:
DDTL $11k - $15k – Borrower will cover $11k - $15k of up-front costs and will give the funds directly to the investor.

DDTL $16k - $25k [ R ] – Borrower will cover $16k - $25k of up-front costs and will reimburse the investor against receipts submitted that do not go over the agreed upon amount.

 
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