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The ONE Killer Loan Product Every Commercial Mortgage Broker Should Have

Posted by Jennifer Foster on Nov 17, 2017 7:48:09 AM
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Every commercial real estate and mortgage broker needs to have an alternative lender in their arsenal of loan products.  Today, bank underwriting has lost its reasoning: credit and debt service coverage are non-negotiable in loan approvals regardless of equity, liquidity, project viability or borrower networth.  

Here are a bunch of reasons to use an Alternative CRE Lender:

  1. Speed to Closing: Good deals and "opportunity waits for no man."  When speed is an issue, banks are the least reliable way to close a time sensitive real estate transaction. Case Study. 
  2. Low Occupancy: Many properties have excellent potential, but it can take a little time to get the occupancy up to full capacity, especially after a remodel or management change. Because many mainstream lenders have high occupancy requirements, declines are common even if the borrower is strong otherwise. Alternative lenders, though, can often finance during occupancy recovery periods. Case Study.
  3. Poor Credit: Loan requests come in all shapes and sizes...and so does the credit attached to the borrower. Many lenders, especially large banks, have rigid credit score guidelines and derogatory seasoning requirements that have little to no flexibility, no matter what the back story of the matter is. With alternative lender, however, each credit report is considered on a case by case basis and there is the ability to work around issues that can be reasonably understood, explained, or mitigated against.
  4. Insufficient Income Documentation: With so many individuals moving away from traditional "W2" income, and into less conventional methods of earning a living, it can be hard at times to find loan approval with income that is hard to document or that has little tax history. Enter the alternative lender, who still has the ability to accept alternative documentation or provide financing when income earned doesn't meet big bank requirements.
  5. Cross Collateral: Sometimes one property is not enough to satisfy a loan request and need for cash.  Banks often do not like the idea of loans secured by multiple properties.  And release prices are a foreign concept: it's "all or none" on a payoff request. Alternative lenders are a good flexible source for accessing the equity in multiple properties while allowing for the flexibility to payoff each asset individually through pre-negotiated release prices. Case Study.
  6. CMBS Maturity. Balloon payments and loan maturities often come at the most inconvenient times e.g., when occupancy is low, appraisals are down, capital markets are tight, lease terms are expiring, improvements are needed, credit is challenged and balance sheets are less than stellar.  For all these reasons and many more, CMBS refinance is unlikely and a borrower must look to an alternative source of financing to salvage an otherwise valuable asset. Case Study.
  7. Discounted Loan Payoff: Whey you are the fortunate recipient of a discounted loan payoff from your lender, this could be great news.  However, traditional lenders and banks are reluctant to finance these transactions because it is a "not paid as agreed" scenario.  A private money lender is the best source of financing for low LTV loan payoffs. Case Study.
  8. No Prepayment Penalty: While many people are afraid of getting "stuck" in a loan and having to cough up a huge prepayment penalty if they decide to sell or refinance, alternative lenders generally have no prepayment penalties. This can be a great money saver for investors that do not plan to hold properties for extended years, or that plan to refinance in the near future.
  9. Value Add Strategy: Investors often find properties that can be a value add to their portfolio, but need a little cash to acquire, renovate, and ready to property for market rents or resale. Alternative lenders can help make this cash happen for real estate that has untapped potential.
  10. Closing Deadlines: Quick Funding: Speed of financing can greatly vary from lender to lender, but as a general rule, traditional financing usually is more time intensive to acquire that private money.  For those needing to close a transaction quickly, alternative lending might be a good choice.  While many private funding companies need about 2 weeks to fund requests, there are those that can do it in a matter of days.
  11. Partner Buyouts: Needing to acquire equity in your business by buying out a partner? While this is a very common use of funds, there are many traditional lenders that do not like to loan money out for this use. Alternative lenders usually have no problem with proceeds going to this cause, so long as the business will continue to be stable despite the separation of partners.
  12. Seasoning: If you are talking about a chili recipe, then seasoning is great, but for people seeking financing with a traditional bank, various requirements for seasoning can be a deal breaker. Alternative lenders usually don't focus so much about how long ago you purchased the property, what you used the line of credit you wish to refinance for, or whether you recently changed the structure of your LLC, so long as the other factors in the file are satisfactory.
  13. Looming Balloon Payments: Often times, people wait until their loan is about to mature, and their balloon payment is due, to seek an extension or a refinance. If their current lender denies the extension request, this can really put the borrower in a bad spot and the asset at risk for foreclosure. Alternative lenders can be a key resource in bridging the gap between a looming balloon payment and long term financing that isn't quite in place yet.
  14. Bridge to Permanent Loan: Sometimes you just need a little time, and a bridge loan with an alternative lender can buy you 6, 12 or even 24 months to prepare for a permanent loan. This is ideal for properties under construction or renovations, or those that just aren't quite ready to qualify for a conventional loan. 
  15. Divorce: If your love life troubles are creating problems in your finances, then obtaining a loan with an alternative lender may be a viable way to pay off a divorce settlement amount owed, or simply pull some much needed cash out of a piece of real estate you own.
  16. Bankruptcy Buyout: For those looking to shorten their bankruptcy, exercising a buyout option may be a good strategy. Alternative lenders can help by providing "cash out" financing that utilizes equity in owned property.
  17. 1031 Exchange: these transactions often have a short fuse and missing the closing deadlines on a 1031 exchange can be very costly.  Bridge loans needed to close the gap between cash available with an accommodator and the purchase price is often the most certain way to close a transaction in a timely manner. Case Study.


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