The lowest interest rates and best possible terms will always be the favored choice. But institutional lenders have rigid requirements that limit or kill loan approvals in many loan transactions. Whether dictated by government regulation or bank underwriting, the prohibitions exist.
The private lending industry is subject to an expanded state and federal regulation depending on the loan product, loan purpose, and operative standards for underwriting, funding, and loan management.
Here are just a few reasons why a private loan transaction could benefit you and your clients.
- Immediate approval 4-day funding-bank declines.
- Debt consolidation of business, consumer or a combination. In most cases, the loan used for consolidation will lower the borrower’s monthly obligations.
- Refinance and pay off existing loan coming due for both owner and non-owner occupied.
- Second loan on non-owner-occupied dwelling or income purpose.
- Rehabilitate or upgrade a property in a poor or marginal condition that does not meet bank underwriting guidelines in its current condition.
- Marginal credit-worthiness where a borrower is not bankable and approval of a loan request are clearly property equity driven.
- Owns a cash-based small business and shows limited financial strength on paper.
- Cash out.
- Leverage equity of existing property into an additional investment property.
- Take advantage of sweat equity or to finance with an option to purchase at a below market price.
- Inherited property that needs funds to fix up / rehab and sell.
- Unimproved Land.
- The retail center or other property that needs upgrades or re-positioning.
- High-frequency fix and flips- property purchaser/dealer-rolling into new properties.
- Litigation settlement (e.g., a partition suit) with business partners or family members.
- Pay off judgments and liens, including arrearage in property taxes, association dues, federal and state tax liens.
- Sale of existing promissory notes and deeds of trust to a 3rd party, usually at a discount, whether performing or non-preforming.
- Hypothecation of a promissory note and deed of trust (assigning note and deed of trust as collateral for a new loan).
- Cross-collateralization of more than one property to meet the equity requirement.
- Small mobile home park where the property does not meet the underwriting standards of institutional lenders.
- “Airbnb” rented properties.
- Churches, synagogues, restaurants, bars, automotive repair shops, gas stations, and other current use single-purpose security properties.
- New construction for the purpose to add additional income units or enhance value.
- Collateral is a combination of real and personal property such as a motel, restaurant, car-wash, or gas stations with mini-markets.
- Long-term lease of a master tenant is expected to expire which will cause disruption with other smaller in-line tenants and no bank will make this loan.
- Credit approval is subject to highly sophisticated lease analysis with multiple tenants having different terms of leases. The lease may include go dark provisions or cancellation in the event of an excess vacancy or loss an anchor tenant.
- Mutual easements for ingress/egress, or complex usage rights such as reciprocal parking agreements.
- Foreign nationals with and without a social security number.
- Property has a “notice of a substandard condition.” Recorded where institutional lenders would have no interest. The property needs substantial improvement and modification to bring it up to the acceptable standards.
- Property is non-conforming to current zoning and building standards. As a result, there are strict limitations on the ability to repair or replace the structures in case of destructive acts such as fire, flood, windstorm, vandalism, earthquake. The property may not be able to be rebuilt to the level before the destructive act.
- Seismic retrofit- Many older properties need to be upgraded with steel reinforced frames bolted into the existing structure, and walls shored up with steel support fasteners.
- Tenant Improvements- Many buildings need to have interiors remodeled to satisfy prospective tenants’ requirements.
- Cannabis-related properties
When a property owner is unsuccessful in getting a bank loan, they will discover that there is an alternative lending source that provides much greater flexibility in the underwriting, approval and funding process. My experience is that most private money mortgage brokers and private money funding lending/broker sources are professional and user-friendly.
Business and Private Money Finance Consultant
Bus. 949 521 7115
I intend this article for educational purposes only and is not a solicitation.