Using Private Loans for Commercial Real Estate
When a commercial real estate investor shops for financing, he or she might prefer to obtain a loan through a private lender. This is something that at first glance might give someone a moment of pause. However, when you delve into some of the reasons why private loans are advantageous in commercial real estate, it makes much more sense. Here are some of the reasons that many commercial real estate investors are choosing private lending over traditional financing.
Less Stringent Loan Qualification Requirements
Generally speaking, private loans carry less stringent qualification requirements. In commercial real estate, a bank will often look at an investor’s portfolio and see that he or she has many real estate properties. Compared to his or her verifiable income, it might look like too much debt. A private lender is more likely to look past what the would-be borrower looks like on paper and come up with a creative solution that works for both parties.
Quicker Loan Approvals
A commercial real estate investor might go through a private lender because they can get a quicker loan approval. Many times in commercial real estate, the transactions are extremely time sensitive and being able to close quickly becomes paramount. Conventional mortgages obtained through banking or institutional lenders will usually require 60 to 90 days to close. Commercial real estate investors often need to close in a fraction of that time, usually within seven to 10 days, and may therefore choose private loans for their financing needs.
Concerns About Privacy
When you go in to a bank to obtain financing for a real estate property, commercial or otherwise, you will be required to submit a lot of personal information just while filling out your application. For this reason, many investors prefer private lending options so that they can protect the security of their business, their personal data, as well as the clients with whom they are working.
Get More Money
One significant difference between private loans and institutional loans in terms of commercial real estate is that institutional lenders lend based on the property cost and the appraised value. On the other hand, private lenders base their loan amounts on the appraised value only. In other words, a private loan might mean more money. An investor will likely be able to borrow more money from a private lender than they would be able to through an institutional lender. This puts more money back in the investor’s pocket. As a commercial investor, obtaining your financing through a private lender might ultimately make more sense.