It’s no secret. Private lenders approach lending differently than banks. Banks are tormented by regulations, guidelines and committees. This triumvirate of torment slows down decision making and fails to serve the needs of many prospective customers. Consequently, these customers must seek alternative sources of financing.
The entrepreneurial borrowers we serve with our private real estate loan fund need us because they have difficulties coping with bank requirements.
Banks require mountains of paperwork, mostly historical, third party reports, such as appraisals, impeccable credit and lots of time. Weeks sometimes turn to months. Even then, the bank says, no – way more often than they should for going so deep into the process.
I can’t speak for other private real estate lenders, but we focus on the essentials of the transaction.
- Do we know our borrower and have confidence in their ability to do what they say they will do? For new borrowers, this means going through a review process and meeting them to get acquainted – What have they done? How have they done financially? Does this transaction fit their skills base? Credit Scores (more on this in an upcoming post) play a minor, minor role, but we pull them to see how payment history fits with the history. Are we confident they will be able to get the job done?
- Skin in the game. Does our borrower have a significant cash investment in the project? It’s one thing to sign a note to a lender based on the “value” of the property. It’s another thing to have cash on the table. As the saying goes, “cash talks, BS walks.”
- The property represents the keystone of the loan. It holds the whole transaction together. What are they paying? What needs to be done to enhance the property? What will it cost? Will the rent support the loan upon completion? What sort of value is generated here? Is there a margin of profit worth the effort? How will we get repaid? What is plan “B”? If the whole deal falls apart, how do we save our investment?
Well, that’s simple. Our documentation is simple. We only do loans for investment and business purposes, so we don’t have to mess with all the consumer compliance.
We offer a prompt yes or no. Often our borrowers don’t have time to wait for a slow no. Frankly, a slow yes is worse, since the time for action is past.
Many of our borrowers would qualify for bank loans, but they just don’t have the time or the stomach to cope with the bank’s requirements. Some borrowers have had rough patches. These rough patches freak out the bankers, but we view them as the borrower’s Master’s degree in business. Heck, some have earned PhD’s! These folks know what to do, but sometimes it just doesn’t work out. We lend to them, too. They are often our most reliable customers.
We work hard to help our borrowers avoid the triumvirate of torment and to keep it simple, as simple as 1,2,3!
Borrower in search of real estate loans? Check out our web site: www.lynxloanfund.com
Investor looking for a secured, interest paying investment? Check out: www.securedprivatedebt.com