Private Commercial Mortgage Lenders – Filling The Funding Gap – Investors Turn To Hard Money Lenders

Getting a Commercial Mortgage is Tougher TodayWe are, indeed, in the midst of a significant and severe credit crunch. Conventional lenders, such as banks, Wall Street investment houses and insurance companies have greatly curtailed their lending activity. Even the very best investors and developers are finding it hard to get projects funded.The collateralized debt market has dried up. Few bond buyers are interested in mortgaged backed paper today. Big institutional lenders are finding it impossible to turn the mortgages they originate into cash. Put in simple terms; no mortgage buyers, no mortgage loans.Property owners, investors and developers are left frustrated and without financing.Good Deals on the SidelinesThe dollar volume of pent-up commercial mortgage loan demand now measures in the hundreds of billions of dollars. Deals that, just a year ago, would have enjoyed quick funding are being rejected by banks out-of-hand. Not because they don’t have merit, but because the banks and their counterparts are caught up in the liquidity crises.With millions in profit potential at stake, commercial property investors are seeking out non-traditional sources of mortgage funds.Private Commercial Mortgage Loans; Funding Deals When Banks Won’tPrivately funded commercial mortgage loans are becoming increasingly popular during this mortgage meltdown. Private lenders, many funded by wealthy individuals, hedge funds or other large pools of capital, often lend their own money for their own portfolios. These unique lenders have not been crippled by the breakdown of the collateralized mortgage bond market. They can still originate loans at will without worrying about who may or may-not want to buy them.Further, private loans (sometimes called “hard money” loans) can close in just days, as-opposed to conventional loans which, if you get one at all, can take 3 months or more to fund.
There are generally no loan committees, stacks of paperwork or complicated ratios to deal with. If they like your deal and you demonstrate that you can pay them back, they can and will close your loan no-matter-what Wall Street is doing.What Private Commercial Mortgage Lenders Look forPrivate lenders are equity based lenders; loan decisions are not driven by the credit of the borrower. It is essential that the collateral property have substantial equity in it. Most hard money commercial lenders won’t lend more than 70% of the purchase price or, in the case of a refinance, the value of the commercial property. So be prepared for large down-payment requests or a good sized 2nd mortgage. Also, borrowers will need to have some cash, typically 10% or more, in any given deal. There is no-such-thing-as 100% financing today. Documentation requirements will be much less than conventional lenders would require but be prepared to back up any claims you make with some proof.
Income producing buildings are favored by hard money lenders but most are willing to consider all property types.Hard Money Commercial Loans Have Become IndispensableWith the large conventional lending institutions frozen like a deer in the headlights, private, hard money commercial lenders have become indispensable to the commercial sector. They stand ready and willing to lend against quality buildings or well thought-out development projects. Investors should not give up on finding financing for their best deals until they have looked into a privately funded mortgage.

Commercial Mortgage Loans – Credit Crisis

In my humble opinion the credit crisis will be resolved and we as the commercial loan brokers that stuck it out will be in a strong positions when the secondary market returns. These cycles happen every 10 to 15 years. Compare what is happening right now to the saving and loans crisis. During that cycle 1009 institutions went out of business. 1009… Last week Silver State Bank went out, we’re now at 11. 11 vs. 1009…Also, The Mortgage Banker Association came out with a report last week regarding default rates on the CMBS market. Though the default rate went up from .30% to .48% we are still at 20 year lows! To me this means that the fundamental on the commercial side are still in place.How long will it take to work out? I don’t know. I’m hearing a year, maybe a year and half. However deals are still closing. They may not be as fat as they where a year ago, but if you dig deep enough you can still find doable, “closeable” loans. With that being said residential loan officers and brokers that are in the midst of diversifying their income by brokering commercial loans, don’t underestimate the transition.But don’t get intimidated. Commercial loans are not that complicated especially on deals under $3,000,000. The trick is to learn to be able to spot doable deals. Not only deals that will close, but also loans that you will have a competitive edge on. It’s all about finding the right “hair” on the deal.And don’t try to wing it. We get loan applications all the time from residential loan officers that haven’t taken the time to learn the intricacy of the business. What you can’t afford is wasting months on deals that aren’t doable from the start. Training, any type of training for commercial loans is essential if you really hope to succeed as a commercial loan broker in this market.Now is the time to bear down, not think about switching industries; in a year or two we’ll be in a position to rake it in and on comrades that left the industry will still be trying to figure out their new industry.

Startup Financing For Small Businesses

Startup financing for small business is necessary and hard to acquire.  Financing the startup of a business is a particular challenge during tough economic times, as small business startups need money when money for starting up is hard to find.  During these challenging economic times, it is difficult to obtain startup financing from traditional business financing sources; particularly for small businesses, which are considered a high risk for business failure.However, fueled by a growing unemployment issue (caused by shrinking businesses and lay-offs), individuals are following their dreams and opening a small business.  If their business idea is perceived to be very strong and if they have a unique product or service with a good strategic plan, they might be able to get traditional business start up loans. If there is a perception of risk, those entrepreneurs need to find an alternative method of raising startup funds.Traditional business financing includes commercial lending organizations, banks and government financial programs. These organizations provide loan products, operating lines of credit, equipment leasing and asset financing, and more. But, due to current global financial market conditions, it can be challenging to qualify for this startup financing (lending criteria has tightened as most traditional lending institutions want a high level of security and low risk) and it can also be challenging to get cash-strapped lending institutions to disperse business start up loans, asset financing, or operating funds promised.One alternative to traditional financing is to see if you can interest an Angel investor in providing an investment in your business.  Angel investors typically charge higher interest rates and are in for a short term period; they want an exit strategy within a specified period of time (therefore they will want their money back, with interest, quickly). Angel investors are often interested in the high tech or biotech industries; or other high reward (and also high risk) industries.  To attract Angel investors, your business needs to have strong and fast growth potential, a talented management team, a compelling business plan, and well priced equity. Angel investors usually look for up to 50 percent equity in the business; this is really dependent on the business proposal and the investment amount.  You typically give up some control when you develop a relationship with an angel investor.Another alternative is to find a strategic partner or to build a strategic alliance that allows your business to reduce its cash and/or startup financing needs. This also means a loss of control over the business; and partnerships can end up like marriages, in divorce.  Yet another alternative startup financing is bootstrapping.  Bootstrapping is financing a business startup or business growth through non-traditional methods. Bootstrapping is about raising funds (for example, to start a new business), without startup capital.  If you plan to startup a business that has a significant investment in capital equipment, consider asset financing.  Asset financing will provide a loan for equipment that you buy to operate your business.For new business owners, that might mean working several jobs to raise cash.  Or revising your plan to start your business with less money, or fewer products or services.  Consider leasing furniture, computers, sharing office space and administration staff.  Make sure you carefully consider your cash flow needs and do a cash flow projection for at least a two-year period.  Cash flow management is a way of reducing startup financing needs; effectively manage your cash flow by managing receivables, payables, inventory, and short term debt (in other words, increase incoming cash and reduce outgoing cash). Some other non-traditional business financing methods might include:
use of credit cards;
second mortgages on the entrepreneur’s home;
equity loans, secured by personal assets; loans from key suppliers;
partial pre-payments or progress payments from large customers;
and/or loans from family, friends and associates.
For small business owners, obtaining the financing to startup your business or to keep it operating is usually a challenging experience. Before you borrow the money you need for startup, ensure that your business can support that level of debt and can repay on the lender’s debt schedule.  You need to have a strong business plan and be able to present a strong business case to your lenders.  Financial lenders will assess your knowledge, your capability, and your business proposal. You will likely have to put up personal guarantees for the money you need; this means you have to have assets to back up your guarantees. Unfortunately, not all prospective business owners have the credit rating to qualify with their lending institutions. Business financing and business start up loans are serious endeavors.  You will owe a lot of money and if your business doesn’t succeed, your money and your lenders’ or investors’ money will be gone.