Commercial mortgage brokers and bankers have a variety of options when trying to secure funding for a client. When the client’s need falls outside the scope of traditional lending institutions, brokers can turn to private lenders for assistance with more complicated or unique financing situations. The fundamentals of working with private lenders are the same, but brokers can make the process easier by following these guidelines:
Before you submit a deal to a private lender, be sure you’re familiar with their lending or investment focus. Visit their website and seek out specifics on what asset classes and geographies they consider or set up a preliminary call with an originator to learn more about them. Asking about a lender’s recent transactions is another way to gain a better understanding of the types of loans they will consider. Many private lenders specialize in particular types of financing as well so commercial brokers should have an understanding of the loan programs available. Sending deals or funding requests that are far outside the scope of the lender’s focus can be frustrating to an originator and leave a bad impression of the broker’s competency.
Always send more information as opposed to not enough. For private lenders that consider numerous deals each month, the more comprehensive the loan submission package at the start the easier it is to review, request more information, and ultimately determine its attractiveness. Most private lenders will require both asset and borrower level information to start evaluating the transaction. For the asset, this could include photos of the property, recent appraisals, and relevant financial information including rent rolls if applicable. On the borrower side, most lenders will want to know the borrower’s history and experience with the particular type of real estate, net worth, sources of income, and explanation of any special circumstances including former bankruptcy or poor credit.
At the start of engaging a private lender, brokers should be prepared to explain why the borrower or the asset doesn’t qualify for traditional financing. If the borrower had previous bankruptcies or other events that require explanation, it is best to be upfront with the lender as any potential issues will be ultimately uncovered in the diligence stage and can often be more easily navigated if they are shared at the start. Additionally, if the asset is currently under poor management or requires renovations in order to reach peak occupancy, the lender will want to know that and receive full and accurate plans for improvement.
Private lenders often fill the much-needed gap between short-term and more permanent financing by providing borrowers with bridge loans. A key consideration when lending on a less than five-year term is what the exit strategy will be, or how does the borrower plan to refinance the bridge lender out. Additionally, lenders will want to know specifics on how the borrower plans to service the debt during the life of the loan. They will need to see the support that sales, rent, or other income will be sufficient to meet the loan payments.
Bloomfield Capital is an active member of the Mortgage Bankers Association (MBA).
