Commercial Property Lending

Commercial property lending sources are as varied as ice cream flavors with some the borrower will like and others as distasteful as watermelon custard. Of course the lender chosen will depend on how anxious the borrower is to secure the property and what kind of shape financially he finds himself at the moment of deciding he just must have that property. Rapid cash will probably be delivered best by a hard cash lender while if there is a little more time to finalize all details, perhaps a bank can offer more favorable conditions for the loan. But the issue always comes down to circumstances, but usually never with the lender. There is always legal money to be had one way or another. Of course, recent events with Wall Street may affect everyone's ability to get commercial property lending money to some degree or another, but a typical financial world can offer these options.

Take the case of Herman the Bird Man who sells one hundred species of birds found all over the world to pet stores, colleges, commercial aviaries and others who find the feathered creatures to be of varied interest to their lives or businesses or pursuits. Herm is running out of room in the warehouse where the man readies the birdies for flights to hither and yon. Cockatoos are fighting with macaws and a new place must be found immediately. His search has taken him to the outskirts of town where a very large and now defunct factory building sits quietly waiting for the rantings of a magpie. Herm knows this is the new place, but when the guy calls the realtor, Herm is told another inquiry of serious nature has been made and if so desired the man can call to verify the seriousness of the other party's interest. Herm cannot wait on a bank's typical thirty to sixty days loan process and must act quickly, so Herm calls a hard cash lender who has been known to help local businesses that need commercial property lending resources.

A hard cash lender is a private commercial property lending investor who can do anything with his money he wishes, so no bank regulations or laws need stand in the way of making a deal. In most cases, a hard cash lender makes loans in the geographic sphere of personal knowledge, and this lender knew exactly the property of which the Bird Man spoke. Herm knew a lot about birds but not much about commercial property lending so sticker shock set in when the hard money lender laid down his terms. The lender would loan Herm one hundred eighty thousand of the three hundred thousand dollars needed to purchase the old factory, a pretty standard sixty or seventy percent hard money loan detail. This hard money lending agreement, also known as a bridge loan, would be for one year and would cost Herm four points, more typical hard cash requirements. Since a point is equal to one percent of the loan, $7200.00 was the upfront cost of borrowing the investor's commercial property lending money plus twenty three percent interest. The investor asked that Herm also put up his house as collateral for the rest of the one hundred and twenty thousand he would have to get from another investor or money source; all requirements very typical for getting quick hard money.

Commercial property lending sources can also be what is known as angel investors, who are wealthy individuals who most often supply start-up capital for high profit businesses, usually in exchange for partial ownership of the business. In most cases, these investors invest in such things as medical supply, medical equipment and other high tech business ventures. These investors are very particular with whom they loan money, as opposed to the hard cash lender who is not nearly as interested in a borrower's credit rating because all the loans are tied up with property collateral. Business plans and financials must be of the highest caliber before an angel investor will part with any money. Investing to make a lot of money isn't nearly as important as investing in one's spiritual relationship with God, at least according to how Jesus looks at things. "Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt and where thieves beak through and steal." (Matthew 6:19)

The banks and investor groups will be the bread and butter of the traditional resources for commercial property lending streams. Banks, dealing with depositors' money will in most cases offer the lowest interest and points costs, but will also be the most stringent in terms of borrower requirements. In today's market, nearly flawless credit histories will be demanded of bank borrowers for any loan, including business loans. The very nature of government regulations by which banks must abide will limit the creative nature of commercial lending agreement that private lenders and investment groups can offer. Investor groups, tied to very little government control because they deal in private investor money, have a higher risk tolerance and can engage in more creative ways to make property lending happen. Since the borrower requirements are lower, investor groups will charge much higher interest rates and points for the credit.

With all that is happening within the credit markets recently, lending for commercial transactions may slowly grind to a halt, even with the influx of government money into the economy. Experts warn of more upheaval in the months to come. Jettisoning as much debt as possible is good advice for all involved in business. Herm the Bird Man made that choice. His wife wasn't about to agree to putting up their house for the new deal so they sold the business to a septic tank cleaner and moved to Florida. Herm is fishing and selling insurance.