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Transcript of Real Estate Revealed Show on AM560 from Sunday, September 26, 2021

“Alternative Commercial Loan Options – Sometimes They’re Better Than Banks”

Good morning everyone.  Hard to believe the first weekend of Fall is already here. 

Most weeks I talk about different trends, interest rates, and products in the traditional banking market.  When I use the term “traditional banking” I am referring to products from regulated institutions such as Banks and Credit Unions. 

However, there are many more lending options out there beyond just Banks and Credit Unions, and sometimes utilizing these other lenders actually makes more sense than going to a traditional lender.   

Does anyone here know of some lending options that would be a non-traditional option?

I typically refer to any non-traditional commercial loan option as a “non-bank lender”.  Most people assume when you say “non-bank lender” that it automatically means you will be getting a much more expensive product.  Although sometimes that is the case, many times non-bank lenders provide financing options that are priced very competitively with traditional lenders. 

Even in some cases when the loans are more expensive, sometimes non-bank lenders are willing to offer much more aggressive advances rates, can close quicker, or are willing to do deals more traditional lenders cannot do, so it might make economic sense to pay a higher rate in some circumstances. 

Here are some examples of non-bank lenders:

• Publicly traded companies that have a commercial lending arm. General Electric had a whole lending division called GE Capital that provided a wide range of commercial loan products for many years and their products directly competed with the Banks on pricing. 
• Private Firms that do commercial lending. There are many companies that have niche business units doing all sorts of lending.  Some of these lenders package the loans up and sell them into the secondary market as a commercial mortgage-backed security, similar to how traditional home mortgages get sold, except without the US government guarantee provided on home mortgages through Fannie Mae and Freddie Mac. 
• Family Offices. Many family offices will lend into transactions in addition to or instead of putting capital into those transactions.  Family Offices often have capital they are looking to get some sort of fixed rate return on, which they can achieve through lending.
• Individual Investors that have capital and lend it out to make a fixed income return.
• Factoring companies that will lend on receivables and provide working capital to companies quickly.  
• Equipment Finance & Leasing companies. Although there are many Bank owned equipment finance companies, there are also many independent ones as well.
• Other Non-Bank Lenders – there are many other niche lenders out there that have developed to fill all sorts of needs in the market.  

As you can see, there are many different types of non-bank lenders out there providing commercial loans. 

So what types of transactions could you do with a non-bank lender that a traditional bank likely would not want to do. 

• Real estate loans to maximize your cash out against a commercial property. Traditional banks often limit the amount of cash-out they will provide for a number of policy and regulatory reasons, but non-bank lenders can lend whatever they get comfortable with because they do not operate under those same regulations. 
• Low documentation or no-income verification commercial loans done (yes, they exist) for business and real estate owners who have maybe had a few tough years or are not showing enough cash flow on their tax returns to support the loan traditionally.   
• Short term financing needs where Banks likely would not be comfortable filling the short-term need.
• Turn-around situations or construction projects with businesses or properties where Banks might struggle with the risk.
• Financing for projects where the owners have bad credit, bankruptcies, a lawsuit or other issues they need to work through.

Non-bank options can be invaluable when you run into a situation that was not expected.  As an example, just this week we closed on a refinance of four single-family investment properties where we were able to cash the client out up to pretty much 75% of value without having to provide personal tax returns or a personal financial statement utilizing a non-bank lender.  It was all done based on a simple application, leases, his credit score, and an appraisal for each property.  The client’s interest rate on each transaction was right around 4.50% fixed for 30-years, which is a great 30-year fixed rate on a commercial transaction.  This is just one example of a very strong transaction available from a non-bank lender. 

If you are ever interested in exploring all of your financing options both with a traditional lender and a non-traditional lender, we have over 350 funding partners we place debt with and plenty of options in both categories and would be more than happy to discuss options that might work best for you.  As always, we can be reached at 630-988-4852 or via email at brad@commerciallendingx.com.  Thank you and have a great rest of your Sunday.