| Property owners, investors and developers have | | | | Private commercial loans can close at lightning speed. |
| choices when it comes to commercial mortgage loans. | | | | There are no restrictions or special regulations on hard |
| National and regional banks, Wall Street firms and all | | | | money commercial lending (residential hard money |
| major insurance companies offer, fully underwritten, full | | | | lenders must adhere to all state and federal mortgage |
| documentation conventional mortgage loans. | | | | lending rules). Loans can close in as-little as 3 days, but |
| Wealthy individual investors and privately owned | | | | 14-21 days is normal. |
| lenders offer a wide variety of private, often called | | | | Rates and Terms |
| hard money, commercial mortgage platforms. | | | | Conventional lenders compete with each other on |
| Both private and institutional loans have their place; | | | | rates and terms and the banks and financial firms that |
| each offers separate benefits and each have their | | | | issue them are extremely well capitalized. The interest |
| own drawbacks. | | | | rates, points and the variety of mortgage platforms |
| Transparency | | | | offered can't be beat by private funding sources, |
| Federally chartered banks, public Wall Street | | | | which, by their nature have limited funding capacity. |
| investment houses, finance arms of public corporations | | | | When banks loan out money they have many |
| and insurance companies are all highly regulated and | | | | methods of recapitalizing. They can sell the loans to |
| have strict disclosure and reporting standards. It's easy | | | | one of many outlets and they can, of course borrow |
| to know when you're dealing with a legitimate firm. All | | | | against the loans. Banks offer low rates and attractive |
| the companies' financials and business information is | | | | terms because they can originate a seemingly unlimited |
| public and easily accessed by borrowers wishing to | | | | amount of mortgages. They make a little money on |
| check them out. | | | | a-lot of loans. It's the sheer volume and the continuous |
| Private mortgage lenders, on-the-other-hand, are, by | | | | movement of funds that keeps them swimming in |
| definition, private; it's often difficult to check them out | | | | profits. |
| and confirm their claims. It is imperative that borrowers | | | | Private lenders often "portfolio" or hold their loans. Their |
| make sure they are dealing with a bonafide lender with | | | | source of profit is the interest and points they charge |
| a reputation for funding deals. This can be | | | | borrowers. They have target yields they strive to |
| accomplished by using the services of a professional | | | | achieve and would rather not make a deal than make |
| commercial mortgage broker or intermediary. A good | | | | a deal that puts their capital at risk without the |
| loan agent knows who's for real and who's not. They | | | | corresponding yield benefit they desire. Rates and |
| don't get paid on loans that don't fund so they won't | | | | origination points will be significantly higher and product |
| waste time submitting files to questionable lenders. | | | | offerings significantly limited when dealing with a private |
| Speed | | | | funding source. |
| Conventional loans are made by regulated institutions | | | | Conventional vs. Private |
| and will require full documentation and adherence to | | | | If you have the time and if you can qualify, it makes |
| strict underwriting parameters. The process takes time, | | | | economic sense to use a bank or large financial firm. |
| especially if a borrower is trying to take advantage of | | | | You will have more choices as-to the structure of |
| a Government loan guarantee, such as those offered | | | | your financing and you will secure superior rates and |
| by the Small Business Administration (SBA) or the | | | | terms. |
| Veterans Administration (VA). Institutionally funded | | | | If time is of the essence or you can't provide full |
| conventional loans typically take 30-60 days to close. | | | | documentation or have poor credit. You may have to |
| Loans affiliated with Government Agencies (SBA) | | | | go with a private lender. It will cost more in absolute |
| have more requirements and take between 60-180 | | | | terms but will be cheap when compared to not getting |
| days to complete. | | | | a loan at all. |