Private Commercial Mortgage Lenders – Filling the Financing Gap – Investors Turn to Hard Money Lenders
Getting a business mortgage is harder today
We are, in fact, in the midst of a significant and serious credit crisis. Conventional lenders, such as banks, Wall Street investment houses, and insurance companies, have greatly reduced their lending activity. Even the best investors and developers find it difficult to get financing for projects.
The secured debt market has dried up. Few bond buyers are interested in mortgage-backed paper today. Large institutional lenders find it impossible to convert the mortgages they originate into cash. In a nutshell; no mortgage buyers, no home loans.
Owners, investors and developers are left frustrated and without financing.
Good deals on the side
The dollar volume of pent-up demand for commercial mortgage loans is now measured in the hundreds of billions of dollars. Banks are rejecting offers that, just a year ago, would have enjoyed quick funding. Not because they are without merit, but because banks and their counterparties are caught up in liquidity crises.
With millions in potential earnings at stake, commercial property investors are looking to non-traditional sources of mortgage funds.
Private Commercial Mortgage Loans; Financing offers when banks do not
Privately funded commercial mortgage loans are becoming increasingly popular during this mortgage bust. Private lenders, funded mostly 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 affected by the collapse of the mortgage bond market. They can still originate loans at will without worrying about who may or may not want to buy them.
Also, private loans (sometimes called “hard money” loans) can close in just days, unlike conventional loans which, if you get one, can take 3 months or more to fund.
There are typically no loan committees, reams of paperwork, or complicated ratios to deal with. If they like your deal and you show 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 Are Looking For
Private lenders are stock-based lenders; lending decisions are not driven by the borrower’s credit. It is essential that the collateral property has a substantial interest in it. Most hard money commercial lenders will not lend more than 70% of the purchase price or, in the case of a refinance, the value of the commercial property. So get ready for big down payment requests or a good-sized second mortgage. Additionally, borrowers will need to have some cash, typically 10% or more, on any deal. Today there is no 100% financing. Documentation requirements will be much lower than what conventional lenders would require, but be prepared to back up any claims you make with some evidence.
Income-generating buildings are favored by hard-money lenders, but most are willing to consider all types of properties.
Hard Money Business Loans Have Become Indispensable
With the large conventional lending institutions frozen like a deer in headlights, private hard money commercial lenders have become indispensable to the commercial sector. They are ready and willing to lend against quality buildings or well thought out development projects. Investors shouldn’t give up on finding financing for their best deals until they’ve shopped for a privately funded mortgage.