Commercial bridge loans, mezzanine financing, or hard money loans offer an alternative to traditional loans financing. Banks and mortgage brokers when having a hard time obtaining traditional commercial loans, they may turn their clients to alternative financing options to fund a project.
Lack of experience with alternative financing, however, could hinder a borrower from obtaining the loan they need. By learning more about mezzanine, bridge, and hard money loans and how to obtain them, borrowers can be more successful in obtain an alternative loan. Here are some of the most common mistakes banks, lenders, mortgage brokers, and borrower’s make.
Assuming It’s a Done Deal
Being rejected by a traditional lender doesn’t make the borrower an automatic candidate for a hard money loan deal. This is the first mistake. Not working with the right lender. Most large banks and lenders have rigid lending criteria of which if you don’t fit into they must deny. The don’t have different capital sources or other funds to create a loan product specifically for you needs. Not all commercial lenders are created equal. Make sure your lender is creating a loan for your specific needs not the other way around.
Requesting an Unrealistic Loan Amount
Even if applying for alternative financing, Loans still need to meet the requirements of a hard money lender in order to be approved. Depending on the lender, some of these requirements may be the same as for a traditional loan, i.e., down payment, credit profile, time to close, application, etc. The difference may only be that they are willing to take the risk the other lender wasn’t able to and the terms and rate with therefore be adjusted to accommodate those such risks. Before borrowers approach a hard money lender for a loan, they should review the lender’s requirements to ensure they qualify. Hard money lenders typically look for enough equity in a deal just in case they have to take back the property, business, or collateral. They too need to minimize the risk of losing their money.
Omission of Basic Information
It’s a common mistake for borrowers to submit unnecessary information with their loan application, or omit basic information that is essential to the loan process. Accidental omission of basic information that a lender needs to analyze your deal could delay, if not derail, the loan process. Especially if your requesting an unrealistic loan amount.
Lenders don’t appreciate having to sift through mountains of paperwork looking for the basic information they need to review a loan application or working with someone who is not prepared or hasn’t completed their research.
Failure to Tell The Full Story
Bridge, Mezzanine, and Hard money lenders look at the particulars of every loan application to ensure they’re making the right decision in approving or disapproving a loan applicant. They’re particularly interested in why borrowers want to obtain such a loan, or what the borrower plans to put the money toward.
For some lenders, the story behind the loan request could make or break the loan deal. Failure to tell the loan story could result in getting rejected for a loan. Don’t hide any facts or details hoping the lender won’t know, the truth always come out.
Lenders take this background information into consideration when approving or disapproving a loan. A compelling loan story could very well be the catalyst in getting loan approval.
Not Knowing Your Project
To avoid complications and delays in processing a loan, borrowers should compile a business plan or executive summary of all essential information required by their lender and submit it with their application.
The business plan should include the purpose of the loan, loan amount requested, property address and description, property value, sold comparables, rental comparables, purchase price, purchase to value ration, loan-to-value ratio request, a detailed list of income and expenses, detailed list of repairs needed, business revenue and loss statements, and a profit and loss project also known as a financial feasibility or proforma. Speaking of your experience in your specific field helps ensure the lender you know what your doing. You need to demonstrate confidence in the deal and let the lender know you are aware of every detail and have thought the deal through to the end.
An overview of this nature puts pertinent information in the hands of lenders right away so they can conduct the loan process in a timely manner. Accidentally omitting one or more of these details can cause unnecessary complications and delays in processing a loan.
Not Being The Expert
Nobody should know your deal, project, or business better then you. Be prepared to answer any question about yourself, the project, your business, and what your looking for. Before contacting a lender make sure you have every possible detail in front of you and you have thought about every possible situation.
Commercial lenders that are in high demand receive dozens of loan requests daily. Well-organized loan applications are more likely to receive priority are are definitely a good first impression. The first impression may be the only impression. By demonstrating a professional business standard, borrowers increase their chances of obtaining the capital they need.
Engaging with Untrustworthy Lenders
Engaging with untrustworthy lenders is yet another major mistake many borrowers make when seeking alternative financing. When looking for a hard money lender, brokers should only work with reputable lenders in their field. It’s essential that borrowers research their options carefully and check lenders’ references and qualifications to verify their standing in the community, before contacting them. Go through their website, call them on the phone, get to know them and their requirements.
Working with a trustworthy lender reduces the risk of borrowers developing complications with their loan or getting involved with unscrupulous individuals in their business transactions. Or worse sitting at the closing table with no funds.
Regardless of what you a applying for or who you are speaking to, be professional. Speak clearly, be polite, and respect the other party’s time by being prepared.
Entering the mezzanine, bridge, or hard money loan market can be challenging for any type of borrower regardless of your experience. As a matter of fact many borrowers first contact us thinking they have to seek alternative hard money commercial financing because they were previously rejected come to find out we had a prime interest rate loan program built just for them all along.
If you’re looking for a capital solution with the absolute best terms and prime rate for your commercial property, corporate financing, business ventures, international projects, or investment residential property you have found the right place. We offer long term and short term flexible prime rate loan solutions ranging from commercial to residential, to security backed lending, bridge loans, mezzanine, mergers & acquisitions, renewable energy loans, WTE financing, nationally and internationally, and financing consulting. We can provide you with the commercial loan you need with the terms you deserve.