Private Lenders Bridging Bank Loan Gaps
With the economic downturn and the housing crisis in full swing, many banks are further restricting their lending requirements, tightening their belts in the wake of hand slapping, money losses and angry shareholders.
Offering interim bridge loans, hard money lending is a last resort solution, but one that is necessary in todayâ€™s volatile times. They offer building loans, apartment loans and large bridge loans. These non-conforming loans can prove advantageous for real property investors, especially â€œflippers.â€ Ranging an average of six months to three years, this short-term financing solution helps provide much-needed funds quickly and without unnecessary hassle.
Traditionally, when a borrower applies to a lending institution for a conforming loan, the bank has several lending guidelines, including analyzing timing, risk and cash flow. If a potential borrower does not meet all these categories, then they will not be approved for a traditional loan. In these types of situations, using a hard money lender may be advantageous, if not the only available means to finance the property.
Traditional banks require 30 to 60 days to finance a property, due to stringent underwriting standards, etc. However, private money lenders require far less time, allowing a buyer to close on a loan within a matter of weeks, instead of waiting months.
Before 2007 commercial loans were easy for businesses and individuals to obtain. Now, obtaining a commercial loan is nearly impossible, as many banks have stopped underwriting these types of loans altogether. This has left a hole in the commercial real estate market, one that is being satisfied by hard money lenders.
In fact, reports show that in 2013, more private lenders will help fill the lending gap, especially loans in the commercial real estate market. Many home builders are especially feeling the effects of the banking industry tightening its reigns, as construction loans are difficult to fund through traditional banking institutions. For home builders that rely on the spec home market, versus the custom home builder market, this has been especially troublesome. In todayâ€™s economy, it is nearly impossible for a new builder to get a first-time break and the reality of the situation is that many long-time home builders are in fact declaring bankruptcy.
In light of these difficult times, bridge loans are the only viable solution to maintaining the commercial real estate industry sector, helping keep the economy afloat. While borrowers are paying higher interest rates and additional fees, the lax lending requirements afford real estate developers the ability to stay in business, further benefiting the U.S. economy.