Does an UPFRONT FEE automatically make a lender or investor a scam??
Upfront fees are the most common talked about issue in the financing industry.
For those who may not know, an 'upfront fee' is any amount of money requested to be paid by the borrower to the lender/investor BEFORE closing the loan and distributing the funds to the borrower.
I've heard countless terms from funding sources to explain what this 'upfront fee' is all about. Here are a few: Consideration Fee, Underwriting Fee, Due diligence fee, Commitment Fee, Retainer
The reason why it has caused much debate is because there are hundreds, if not thousands, of scam artists out there who ask for these 'up front fees' to 'process' the loan.
These fraudsters will promise a loan to anyone, regardless of project merit or credit eligibility! They know exactly what documents to provide, what words to say and often will create fake websites to go along with their operation.
99% of my clients have come to me with one major request in seeking funding: NO UPFRONT FEES! I've been told story after story about how my clients were scammed out of hundreds of thousands of dollars!
On the other side of the coin, though, are the legitimate lenders/investors. These big players who run huge lending machines will sometimes ask for an upfront fee, as well. The bank or lending institution requires this capital for the underwriting process, inspector fees and a handful of other costs that arise during the entire loan process.
Most of the time, the upfront fees will be returned to the borrower if the loan doesn't end up coming to fruition OR reimbursed to the borrower at closing.
So, brokers/consultants are stuck between a rock and a hard place. We have clients who refuse to pay these upfront fees (for good reason!). Yet, the only parties willing to fund their projects are those LEGITIMATE lenders who have upfront costs.
I want to hear from you!
To all Borrowers, Brokers/Consultants and Lenders/Investors - tell me about your experiences and express your opinion.
(The thoughts above are MY personal opinion. Please be nice in the comments! I do not take responsibility for what other people say/write).
New Construction Project Developer for GUCCP, Start up pre-revenue, looking for Investors with Equity Interest, Loans, and other potential creative financing.
3 年Daniel, I couldn't agree more with you on this topic. I know without the funding its not possible, so I should pay you to work on my file in upfront fee's? Nope. Success Fee Only. Should be a company name. lol.
Retail Insurance Distribution Consulting
5 年I just told a friend not to do a deal because of the upfront charges. He is broke and if it does turn out to be a scam he can’t afford the money
Managing Director at McCARTHY MICRO FINANCE SERVICE INT’L
5 年Upfront payment to secure any #businessfinance?should not be a problem to the?borrower except they have ulterior motive
Founder Icon Realty Capital, Icon Equity Group
5 年It troubles me to hear of these scams out there. I am in the business of making safe loans that mutually benefit our borrower’s and our investors. Most borrowers we work with understand the costs of getting to the table, our process is very transparent. We obtain bids from third parties , choose the best provider and share the costs and invoices with the client. The expense deposit covers third parties, appraisal, environmental, legal, feasibility, zoning, and internal due diligence to name a few. I think it’s important to mention there a lot of brokers out there that send us deals that on the surface look good only to obtain a term sheet from us and then we later find out that there are multiple skeletons in the closet including very inaccurate construction budgets. It seems as if the barrier of entry into the commercial loan world should be raised to filter out that bad apples.
CEO / Technologist at Hi-N-Low Technology Limited
5 年The scammers are real and all over. The goody lenders should link the upfront fees to borrower's banker for assurance and transparency.