An important understanding when seeking loan capital is that “there is never a shortage loan funds/capital, only a shortage of properly structured transactions.” As so many borrowers lose hope of receiving the funding they need. They go from one lender or loan broker to another, looking for someone who has a magic wand – sorry to break the news, that does not exist. The good news, however, is that when properly structured, a solid loan transaction will reveal itself – many times not in the fashion you expected, but more than likely, an even better solution.. Therefore, we created this brief, but informative White Paper for our readers in an effort to save you the pain which comes from not being in the capital markets daily, as we are.We look forward to serving your capital needs for your new office, acquisition, expansion or refinance. Simply complete this short form [Inquiry] to set up a complimentary cash flow evaluation. 8 Things Small to Medium Size Businesses Should Know About Loans white-paper
What do you do when you are declined for a commercial mortgage loan at a bank? This is a question most borrowers are going to face at one time or another, since there are many small-business owners who will not qualify for traditional financing.
It might seem that after a bank turns down a loan request, a borrower’s options are very limited. To some, hard money might appear to be the only alternative.
In fact, this isn’t the case. Although some borrowers and commercial borrowers are going to be limited to hard money loans because of poor credit, seasoning issues and a variety of other factors, there are plenty who can qualify for a mortgage that combines the characteristics of bank and hard money loans. It’s important for the borrower to seek competent help brokers to understand their options from a professional loan consultant.
Hard money defined (some lenders like to make it sound less onerous by calling it “private money lender”)
Hard money loans are a type of asset-based financing through which you receive funds secured by a commercial property, generally at a high interest rate. These loans are typically interest-only products and tend to be short-term solutions — one or two years — with a balloon payment at the end.
Borrowers requiring a hard money loan often have experienced a distressed financial situation, such as a bankruptcy or foreclosure, which has damaged their credit. Interest rates are usually at least 12 percent and can often be much higher because lenders are taking on more risk with a hard money borrower’s situation. The other costs of a hard money loan also tend to be higher, with lenders charging as much as 10 points to close the deal. Many brokers prey on distressed borrowers.
Hard money loans aren’t cheap, but they do fill a void in the small-balance commercial mortgage market. So, it’s important to be able know what you will qualify and to select the right hard money lender.
When Hard Money Works
If your credit scores are particularly low, a hard money loan might be the only option. Hard money loans can be a way for borrowers in financial trouble to obtain the funds they need while reestablishing a positive payment history.
Seasoning issues also can keep a borrower from qualifying for a mortgage from a bank or some private lenders. Generally speaking, if you have owned a commercial property for less than two years, you will run into issues with seasoning. In this case, a hard money loan could be the right solution as these types of lenders usually don’t have seasoning requirements.
Borrowers who need a bridge loan and are planning to sell their property to pay it off also are potential candidates for hard money financing. Bank loans and some private-money mortgages are usually longer-term loans with prepayment penalties, so a hard money loan that can be paid off quickly without incurring additional fees may be the best fit.
Another case in which you may need a hard money loan is for a purchase-and-rehab property. Few banks are willing to provide financing to borrowers looking to rehabilitate small commercial properties, and even many nonconforming lenders shy away from these situations. If your borrower is looking to purchase a commercial property with the intent to fix it up and sell it, a hard money lender is going to be a good source for obtaining the necessary funds. Alternatively, as GPA Capital has, you might consider a Non-Bank Institutional Lender.
Finally, for some borrowers who need a commercial mortgage in a very short time frame, waiting for a bank loan to close simply isn’t an option. Commercial hard money lenders are known for closing deals quickly and, in the right situation, a borrower will think it’s worth the extra costs.
Hard money loans are a great option for some commercial borrowers. There are other options, however, for small-business owners who cannot qualify for bank loans but are looking for something relatively inexpensive and stable.
For the borrower between a bank and a hard money place, there’s another option: Pursuing the alternative.
Nonconforming commercial lenders with rates and terms in between those of banks and hard money lenders are a great option for many small-business owners looking to refinance or purchase a property. This niche is still relatively underserved, but there are lenders who are willing to work with non-bankable borrowers and their commercial mortgage broker to create long-term financing solutions that benefit all parties involved.
Your credit history is going to be an important factor. If your credit score disqualifies you for a bank loan but may not necessarily low enough to necessitate hard money financing, you could obtain an alternative nonconforming commercial mortgage. It’s also important to note why your score’s too low for bank financing. If your history has recent late mortgage payments, you’re likely only be able to obtain a hard money loan. Credit issues stemming from medical emergencies or financial problems unrelated to their business, however, are obstacles that some we can work with.
If you’re looking for long-term financing, a nonconforming commercial mortgage with the right lender is a great choice. For many borrower’s hard money loans, which require a fast exit strategy as the loans tend to balloon within two years, do not provide the longevity for positive, measured growth. For borrowers seeking a more secure and consistent financing option, an alternative small-balance commercial mortgage could be a good solution.
Commercial mortgages from nonconforming lenders also can function as an exit strategy for you if you currently have a hard money loan. Once you have reestablished a positive payment history and improved your credit, you’re more likely to qualify for one of these in-between loans with our services. Refinancing a hard money loan with an alternative small-balance commercial mortgage will put you on more secure financial footing.
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Although there are some commercial borrowers who will require hard money financing, there are nonconforming lenders with alternative products that will be a better fit for some borrowers. Understanding our non-bankable borrowers and the type of commercial mortgage that suits their needs allows us to create a sound borrowing strategy for our clients.
Common Sense Commercial Loan Criteria
Character. This is demonstrated by credit and most recently, credit score. Have you paid your bills in the past? Judgements? Percent debt against credit lines greater than 30%?
Capacity to Repay. This refers to the actual ability of the borrower to repay the debt and how this will be done. This can be from the earnings from a business, cash flow from the investment property, or, the sale of the investment property. It could even be a forward commitment from a long-term lender in the case of the initial loan being short term.
Collateral. Collateral is what will be liquidated should the borrower not pay the loan when due. Note: the lender requires a margin above the loan amount to cover collection costs should it come to that.
Liquidity. This is what the lender considers “Plan B”. In case the primary means of payback fails, you need at least “interest carry” in the bank until the situation is corrected. NOTE: this can also be satisfied in some cases by stable and substantial earnings of the borrow. Either from his/her “day job” or proven by historical tax returns where assuring the continuity.
“Skin in the deal”. The lender wants to make sure the borrower is taking great care of the collateral, doing everything possible to assure the project’s success. There is no better way assure this than the borrower’s hard cash investment in the project/property/collateral.
Conclusion: Whether a hard money loan, conventional, conforming loan, hybrid or alternate conforming loan, one or more of the above “always” come into pay. When the loan is reviewed by the lender, the transaction must make sense. Some new investors have been taught there is 100% hard money available. It does not fit into the equation since it costs 35% of the asset value to foreclose for non-payment. Thus, the maximum loan to value is 65%. Make sense?
If one of the above is weak, a strong “other” may compensate making for a loan approval, again, make sense?
“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for [with properly leveraged funds], and managed with reasonable care, it is about the safest investment in the world.” Franklin D. Roosevelt. See GPA Capital/Investopedia Article
There is no better way to experience not only capital gains, but, long term stabilized income. Appreciation is an added benefit to this as well.
For this reason, as the economy is “heating up” GPA Capital has developed the tools you’ll need to take full advantage of these opportunities. See our website for useful tools including express loan applications. Here is a guide to help you choose the right business loan, or, if you’re interest in investment, please give a call for a one-on-one.
Now that you’ve printed out the GPA Capital 2019 Planner contained in our last blog, it’s time to get going. We’ve streamlined our website and focused on our “Core Business” of “Lending”. Please stay tuned for updates. We wanted to get the year started off right. We’ve aligned ourselves with wider and deeper Capital Partners. We’ve seen the results already; January was a banner month.
Loan application are easier and quicker for 2019. You can apply directly on-line for each of the three main products:
- Express Real Estate Loan Application
- Express Investor Real Estate Loan Application
- Working Capital and Operational Loan Application
To help you map out your profitable 2019, GPA Capital designed an exclusive planner for our readers [Planner]. This includes a full range of what you need to become more profitable, expand, fulfill your capital needs. For the next two weeks we are offering a no-cost review to help you learn your option to maximize your cash flow.
For a confidential consult, hand-write (or type) your input on the attached planner and fax back to my private fax line 866-892-1167.
As always, thank you for your trust and confidence!
If your practice has either struggled financially in the past, or is struggling right now, you know the pressure is overwhelming. This leaves many doctors in a panic to take any deal available, including bad deals like a Merchant Cash Advance (MCA)*. To make things worse, once you’re in an MCA, you’re “un-bankable” to most other lenders until it’s paid off. Learn more about MCAs here.
We’ve had many doctors ask us if we can get them out of MCA’s that are putting a huge squeeze on their cash flow. Yes, we can!
GPA Capital will refinance your MCA (and other short term debts) into a long-term SBA Loan. But this is Step 2. Step 1 in the GPA Capital Plan is to first increase your Internal Capital Growth dramatically, allocating that revenue to pay off any MCA or other business/personal loans.
GPA Capital uses this reported income for those six months to qualify you for a long-term SBA loan. Apply Here so that we can get you out of this pressure and on the right track.
*On the average, Drs. receive 6 to 8 MCA solicitations/MO, yep and 24 hour funding to boot!
Whereas Cash Flow is the “life blood” of any business, recording, collecting and analyzing your business’ operations is the “heart.” The goal, always, is Continuity and Diversity of Income. Therefore, successful practices start their fiscal year with a plan that describes the strategic goals of the organization, its financial and other resource needs. Capital partners such as banks may require a formal business plan before approving credit. GPA Capital has developed a Planning Tool to help our followers and clients. You will benefit by reviewing these Top 10 Strategies:
Strategies I: Strategic plan
Strategies II: Budget
Strategies III: Legal
Strategies IV: Finance
Strategies V: Insurance
Strategies VI: Credentialing/Third-party payors
Strategies VII: Facilities
Strategies VIII: Staffing
Strategies IX: Practice Management
Strategies X: Banking Relationship
For further assistance and direction, feel free to complete GPA Capital’s brief Medical Practice Questionnaire at no cost or obligation.[Start Here]
Whether expanding your existing practice, purchasing a practice or planning your exit, at some point you will be planning to borrow funds for your Medical Practice. Each loan is like “going to battle” with a bank. Listening to the horror stories of our clients who have come to us after being shot down for their commercial loan request, we felt that it would help future borrowers to share what we have learned. Below is the short list and attached is the whitepaper.
- Applying with the wrong lender. Simple, but the number one reason.
- Lack strong “compensating factors”
- Can’t properly document your income
- Inexperienced loan officer or mortgage broker
- Your reasons for seeking a long don’t make sense.
- You don’t have a solid business plan.
- The outside conditions are too risky.
- Picked the wrong type of venture or initiative
- Sandbagged by a know-nothing appraiser
- Bushwhacked by new rules
GPA Capital tailors each unique loan for its providers to best serve their needs. Equally as important, we structure the loan package for minimum chance of being declined. Plus, we always have backup plans 2 and 3. Funding to a conclusion is our goal. Please review the material and should you decide, you can get started here.
As commercial financiers with decades of experience, we recognize that successful healthcare borrowing requires both “art and science.” Unfortunately, many providers don’t understand this and after weeks spent rounding up documents and filling out forms (then more weeks of waiting), 62% of loan applications still get turned down due to inadequate paperwork or poor communication.
Producing a successful commercial loan package requires 2 different skill sets. In school, most people are either good in English/Creative Writing classes (art) or good in Math classes (science) – or if not good, at least prefer one or the other. However, a successful commercial financier must excel in both.
- Writing: Clearly summarizing a borrower’s past (especially details surrounding issues like bankruptcy), the current status of the practice and then presenting future goals that lender’s buy into is crucial. Two fundamental rules in writing are “know your audience” and “know your subject.” By having an MBA in Finance and decades as both a commercial loan officer and commercial loan broker, Chuck Pope at GPA Capital has both rules covered. Knowing how loan officers analyze loan packages and the skill developed from writing hundreds of them himself provides the skill required to focus on each application’s highlights and downplay any deficiencies. Like any good biography, the story must lineup with the facts – in this case, the attached financial documents.
- Math: Analyzing and extrapolating critical data from often thousands of pages of various personal and business financial documents going back years is hard. Then repackaging that data into clear and concise documentation that even the busiest loan officer can quickly find is even harder. By understanding exactly what data loan officers and underwriters are looking for, GPA Capital knows that, with a multitude of loan types and access to hundreds of lenders, with the right financial documentation, there is a fit for almost every situation.
By working closely with our clients, we craft loan applications that provides the required financial documentation and is framed in the best light possible. The result is a much faster loan with the best rates and terms available.
For more on this subject, get the free PDF Art & Science Behind Borrowing
To begin the loan application process, fill out this Confidential Conference Request.
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