The next step is to get a commitment from your investors before you issue a term sheet. Otherwise if the borrower pays for the valuation and you cannot complete the loan it will generate bad feelings. The referrer will mark you as an amateur at best, and fee grabber at worst (if you took and did not return an application fee).

To get a commitment, call the investor by telephone, tell them the scenario and what the property will likely value at, and ask whether, if these representations withstand due diligence, they will do the loan.

Depending on the scenario and the experience of the lender they may have questions and may ask to see some of your searches, particularly the property report. This is where the depth of your due diligence will pay off. The more research you have done and can demonstrate to the investor, the more confident they will be in committing.

Generally speaking the more information you have to give, the more morally binding the commitment. If you have to keep answering questions with “I don’t know I will find out” then any commitment you get will be of the non-committal sort.

If you fail to disclose something the investor deems material then the loan will fail at a later stage and resentment will be felt. What to disclose and what to assume depends upon a good understanding of your lender. With a new lender it is best to err on the side of caution and give the scenario warts and all.

Some brokers prefer to issue a term sheet without first consulting a lender, especially when they have in mind a syndicate loan. Only when they have an executed term sheet and valuation do they shop it to investors. This has its advantages, including:

  1. The investors have a clearer idea of what they are agreeing to;

  2. The loan is further progressed and so closer to the deployment of their money (so they can start earning interest);

  3. The loan is further progressed and so less speculative for the lender if they are setting aside funds for it;