Credit Report Fee

What is a Credit Report Fee?

In the context of a commercial mortgage, a Credit Report Fee is a pass-through cost charged by a lender to a borrower to cover the expense of obtaining official credit history reports. This fee is typically collected at the time of application or as part of an initial due diligence deposit. Because commercial loans involve significant capital, lenders must conduct a thorough investigation into the financial reliability of the parties involved before approving a loan commitment.

Detailed Description and Scope

Unlike residential mortgages, which usually focus on a single individual or couple, commercial mortgage credit checks are often more complex. The credit report fee covers the retrieval of data for several different components of a deal:

• Personal Credit of Principals: Lenders will pull credit reports for all "key principals" or "sponsors" (individuals owning a significant percentage of the borrowing entity, typically 20% or more). This helps the lender understand the personal financial habits and reliability of the people managing the project.
• Business Credit Reports: If the borrower is an existing operating company, the lender may pull a business credit report (such as Dun & Bradstreet or Experian Business) to check the entity’s payment history with vendors and other creditors.
• Public Record Searches: The fee often covers the cost of searching for "derogatory" marks, including tax liens, outstanding judgments, or past bankruptcies that might not appear on a standard consumer report.

Why Lenders Require This Fee

The primary purpose of the credit report is risk mitigation. For commercial mortgages, even those that are "non-recourse," the character and track record of the borrower are critical. A high credit score and a clean history suggest that the borrower is likely to manage the property professionally and adhere to the terms of the mortgage contract.

The fee itself is generally nominal—ranging from $50 to a few hundred dollars—depending on the number of principals involved and the depth of the business credit search required. It is important to note that because these are "hard inquiries," they may have a minor, temporary impact on the individual sponsors' credit scores.

Key Considerations for Borrowers

• Non-Refundable Nature: Credit report fees are almost always non-refundable once the report has been pulled, regardless of whether the loan is ultimately approved or funded.
• Multiple Principals: If a commercial project has five partners, the lender will likely charge a fee for each individual report, which can increase the total cost of the application process.
• Consistency: Borrowers should ensure that the information provided on their personal financial statement (PFS) matches the data found in the credit report to avoid delays during the underwriting phase.