Loans

[S T]

I have a business client that is in the process of closing a loan on the purchase of a business and real estate. Yes, I guess there is still money available!

Now on to the terms, the bank has offered the following terms

Loan amount approximately $1.8 million, 10 year contract renewable

Prime plus 1%
3 Year Fixed at 7%, converts to variable rate
5 year Fixed at 8%, converts to variable rate

Given the current feconomic situation, which would be the best ?

Sandy

[JoshinNC]

Prime plus 1

I have a business client that is in the process of closing a loan on the purchase of a business and real estate. Yes, I guess there is still money available!

Now on to the terms, the bank has offered the following terms

Loan amount approximately $1.8 million, 10 year contract renewable

Prime plus 1%
3 Year Fixed at 7%, converts to variable rate
5 year Fixed at 8%, converts to variable rate

Given the current feconomic situation, which would be the best ?

Sandy

Prime's goin' down, down, down. Fed funds rate could be ZERO before the end of the year.

[veritas]

I would ask

for a cap on the prime +1.

It might be on the high side but at least you have some certainty.

[Roland Slugg]

A good new word

I like that new word you invented, Sandy ... "feconomic"

Fecal + economics

It's a polite version of the one I've been saying all year, and it's very appropriate in view of current news.

[S T]

Oops

Roland, Oops, that was clearly a case of a typing error! But what you posted is pretty true, huh, right about now!

Sorry! I will leave my original post without correction, so everyone can have a good chuckle, which I am sure we all need about now!

Sandy

[sea-tax]

Sandy, Economic theory tells us what goes up must come down and what goes down must come up, there is an Eb and flow to interest rates. I would tend to agree that prime plus 1% is attractive, and that rates are going lower. However it is usually the case that as low as the FED cuts rates they must bring them even higher in the future and for longer periods of time.
Either way I think your client is in for a rude surprise in about 5 years. He/she will most likely need to refi the loan and get a better rate if one is available.
If this business is a long term adventure I would have the client investigate in the rates for 15 or 10 year fixed loans. By then the interest rate crisis should be back to normal.