Is anyone still funding commercial mortgage loans anymore? Fortunately, the answer is; yes. With traditional, conventional lenders virtually out of the picture, the private sector has stepped in and is filling the "funding gap" that this crisis of liquidity has created.
Private lenders, to include, hedge funds, private equity firms, wealthy individuals and privately held financial firms, are still making deals and closing loans. These unique lenders, once referred to as "hard money" lenders, lend their own money from their own accounts and hold or "portfolio" the loans until maturity. They are cash rich and do not need to sell or borrow against their loans to stay in business. Private lenders are not deterred by the problems in the secondary mortgage backed bond market.
Private money will cost borrowers more than institutional financing, but lending standards are much more flexible and usually not credit driven. Lending decisions by private, hard money lenders are generally based on the amount of equity in a property or project not the FICO score of the borrower. Private lenders can fund multi-million dollar deals in just a few weeks rather than the 90-180 days a bank or Wall Street broker would take to close a deal.
In the recent past hard money lenders had a very bad reputation in the commercial real estate industry. Just a few years ago investors would consider a private loan only as a last resort. Today the landscape has changed and private lenders are sophisticated, professional investors. Private lending is now mainstream business and is, in fact, the fastest growing segment of commercial real estate finance.
When time is truly of the essence or if conventional financing is not an option, private lenders perform a valuable service. By making capital available for projects that banks are unable to fund, private mortgage firms are keeping the commercial real estate industry moving forward.
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