Character
Capacity to Repay
Capacity to Repay
This is shown by the total credit available as well as the current credit score. Were the bills always paid on schedule before?
Are there any outstanding judgements? Is the percentage of debt against credit lines greater than 30%? Has the borrower ever been found guilty of fraud, a Ponzi scheme, or any other felonies?
Capacity to Repay
Capacity to Repay
Capacity to Repay
It concerns the borrower's repayment capability and the specific method they will use. Funds could be sourced from business revenue, an investment property's cash flow, or an investment property's sale. In the event the first loan is short term, a long-term lender might even offer a forward commitment.
Collateral
Capacity to Repay
Liquidity Ratio
In the event that the borrower cannot repay the loan on time, the collateral is what will be sold off to recover the debt. It is important to note that the lender will require a margin that is above the loan amount for the purpose of covering any collection costs, if such needs arise.
Liquidity Ratio
Having a Personal Stake
Liquidity Ratio
The lender refers to this as "Plan B." NOTE: In case the primary means of payback fails, you need at least “interest carry” in the bank until the situation is corrected.
Having a Personal Stake
Having a Personal Stake
Having a Personal Stake
The lender wants to make sure the borrower is taking great care of the collateral, doing everything possible to assure the project’s success.
The best way to guarantee this is through the borrower's own financial stake in the project, property, or collateral.
Conclusion
Having a Personal Stake
Having a Personal Stake
Ultimately, hard money loans, conventional conforming loans, hybrid options, and alternate conforming loans may all become relevant in some capacity. The deal needs to be sensible in terms of the lender's risk assessment when they review the loan.
Remember, if one of the above factors is weak, a strong “other” may compensate, still allowing for a loan approval.