A commercial lender offers loans backed by hard collateral, usually real estate. Although real estate is not the only type of asset lenders will loan against, it is the easiest to because real estate collateralizes itself. Usually a commercial lender’s lending criteria will be more flexible than at the local bank. This is because most banks focus on providing private residential financing for individuals of the local community, not large amount loans for real estate or commercial property acquisition. Most commercial lenders are not so much concerned with the borrower’s financial record and qualifications as they are about the mortgage property value.
As opposed to banks, commercial lenders are able to give funding commitments in a relatively short amount of time. In addition, they provide the loan in a short amount of time-usually within several weeks depending on the mortgage terms. Commercial lenders also offer a wide variety of loan products. Perhaps the most popular of these products is the bridge loan. Bridge loans are most often used to avoid foreclosure and take advantage of time sensitive real estate opportunities.
If you can find a really aggressive funder, it is possible to close in as little as 30-45 days for acquisitions (10-20 days for Bridge Loans). This is assuming that all of your paperwork is in order when submitting it to your Lender.
Why so fast? The with a non-bank lender, the strength of the property, not the borrower, qualifies for the Loan. Think about it from the lenders perspective. Why would it matter what my borrowers credit looks like when I have a $5,000,000+ loan? What could I possibly take from this borrower to get my investment back besides the property? Your borrowers personal income will not qualify for a loan on this type of property but the cash flow, strength, and history of the property will.
Who would you rather work with a Bank or a non-conventional Commercial Lender?
I would rather work with a small local bank. They are much more flexible that big banks or mortgage brokers and are able to move much more quicklly. I had one deal where I walked into the bank on Monday and had a check for more than $100,000 on Thursday. Small local banks will do these types of transactions when you have built a relationship with them; when your credit is excellent; when you walk in with all the necessary documents; and when the deal is right. Try doing that with a big bank; big commercial lender; or mortgage broker. Of course, you also must be talking with a decision maker at the bank.
Mike
Agreed…but who do you use for your bigger projects?
Small local banks usually have small local loans.
A smaller loan like the one you just described is more likely to get tossed around in the paper shuffle because there is simply no money in it from the lenders stand point(larger lenders of course).
Is your local bank negotiable on the terms though?
If time to close, less documentation and a stable rate structure are more important to you, non bank commercial lenders are a better option as aowilken has noted.
Generally speaking, working with banks for large commercial deals can take upt o 6 months to close or longer and will require mounds of paper work including your detailed financials.
Also, banks usually structure their commercial loans so that they are monthly adjustable rates tied to LIBOR or other indexes which can change dramatically from month to month. This is bad for developers during periods when rates are on the rise such as now because the your project costs could suddenly balloon due to increased interest costs … which could ultimately kill your project before it is completed.
Private money commercial lenders give you fixed rates that only change by 2 or 3 points each year so that you know what your costs will be. Plus if you factor the index plus margin that a bank is going to offer you … it typically will start at a rate comparable to that of a private lender.
At this time, many of the banks that loan on large commercial projects are pulling back unless you are an experienced developer with sufficient assets to cover the debt.
So to answer the topics subject line - NO Banks are not always going to be your best lender for commercial projects.