WHY PRIVATE COMMERCIAL REAL ESTATE LENDERS MIGHT BE A BETTER CHOICE FOR REAL ESTATE THAN A BANK
If you’re planning on investing in commercial real estate, you’re no doubt assessing your financing options. While going with a bank might seem like the most common and straightforward option, choosing an alternative route with private commercial real estate lenders can actually be a better course of action for many reasons. Commercial hard money lenders for real estate offer loans for deals traditional lenders won’t even consider. Additionally, these loans come with a myriad of benefits.
Here’s why choosing private commercial real estate lenders could be a better option than a bank:
1. Easier and Quicker Application Process
For starters, applying for a commercial real estate mortgage with a commercial real estate private money lender is much more straightforward than applying with a bank. Banks are bound by strict rules including High Volatility Commercial Real Estate (HVCRE) regulations within the Basel III capital requirement, which means following more stringent processes. You’ll need to collect, submit and sign significantly more documents, which is both time-consuming and stressful. You’ll be required to show evidence of the assets you own as collateral, as well as other key information such as detailed plans for the development. The bank will go through all of this paperwork with a fine-tooth comb and then undergo several tiers of extensive review before making their decision regarding your loan. In other words – it takes a really long time.
Hard money or bridge loans lenders for commercial real estate, on the other hand, don’t need to deal with the red tape. Their application process is far simpler, with minimal forms to fill in and fewer documents to provide. This makes the process much faster and less arduous for you.
2. Faster Turnaround Times
This easier application process also means that you can get approved much faster with a private commercial real estate lender. Traditional loans can take a long time to get approved – even as long as several months – so if you need to move quickly on a deal, a bank might let you down. A private commercial real estate lender could lend you what you need in a matter of days.
3. More Flexible – and Tailored – Terms
Another benefit of choosing a hard money commercial property lender is their ability to alter terms and conditions to suit both you and the deal you’re trying to secure. Banks are strict and inflexible, which means you might be signing up for something that is going to cost you significantly more in the long-run or cause greater headaches for the duration of your loan term.
4. Ability to Finance a Range of Deals
As banks are regulated by the government, financing complex loans with a bank can be difficult – or impossible. Essentially, to secure financing for a commercial real estate investment from a bank, your deal needs to be straightforward. Many commercial real estate opportunities are, by their nature, much more complicated or involve unusual property types. Therefore, many loan applications are likely to be rejected. As a bank loan underwrites you as the borrower, banks also often reject complicated personal situations or business situations.
Since Private Commercial Real Estate Lenders are funded by independent companies or individuals, they have greater flexibility when it comes to financing your commercial real estate investment. Asset-based funding underwrites your collateral – not you. Accordingly, you’ll be judged entirely on the viability of the project. A private money lender will look at the full picture to determine whether or not the deal makes sense and are less concerned with things like W2 forms and steady work histories. They are more comfortable taking risks and will do so even on unusual or complex opportunities.
5. Lower Credit Score Requirements
Banks generally have very strict credit score requirements, which makes getting a bank loan unfeasible if you have a less than perfect credit history. Private money lenders accept applicants with low credit scores, or don’t have a minimum credit score requirement at all.
6. Lower Down Payment Requirements
Many banks require significant down payments which can be prohibitive for many borrowers. Asset based lenders are happy to lend you a greater percentage of the deal – sometimes even 100% and therefore don’t require any down payment at all.
7. Lower Costs in the Long Run
While it’s no secret that banks rates are much lower than asset-based lending rates, some of these costs can be mitigated over time by a private lender’s flexible offering. For instance, private money lenders can offer flexible payment plans and lower closing costs, or don’t require you to provide as much capital upfront.
Further, bank fees are often hidden so there might be additional charges you don’t know about until you’ve signed. Generally, private lenders are transparent and upfront about the fees you’ll be charged, making it easier for you to determine exactly what a hard money commercial real estate loan will cost you.
8. A More Personal Experience
When it comes to experience, a bank cannot match a private money lender. Banks operate at a global level without the means to care about you personally. This makes the experience much more bureaucratic, as opposed to hard money commercial real estate lenders who are genuinely invested in you and your success. Even the largest commercial real estate lenders will involve you in much of the process along the way. This gives you the opportunity to form an ongoing relationship with your lender, which makes it even easier to finance future deals.
Of course, banks and private commercial loans aren’t the only two options for financing your commercial real estate investment. There are many other options, including:
● Life insurance companies
● Commercial mortgage-backed securities
● Real estate investment trusts
● Credit unions
● Government agencies such as HUD, Fannie Mae and Freddie Mac
● Loans guaranteed by the Small Business Association
Like anything, it pays to do you research and ascertain which loan type and which lender is right for you.
If you’d like to find out more about RSC CONSULTING LLC private commercial real estate loans, feel free to get in touch. We’ll be happy to answer questions or help you apply for a private money loan.