Why Banks Shouldn’t Have the Final Say in Commercial Lending
Sep 06, 2017
Banks are the standard for commercial lending, and it makes sense – conventional lenders have always provided the most funding, real estate or otherwise. It’s literally fundamental to their business.
For this reason, banks tend to project the image that they have the final say when it comes to the average person’s borrowing prospects. If a bank determines not to lend to you (for whatever reason), it won’t – it’s usually an indicator that other banks may not lend, either. While banks stand to benefit from the interest paid on commercial loans, they also take on a substantial risk. Unfortunately, conventional lenders’ risk aversion has escalated over the past several years, making lending guidelines tighter than ever.
Reserve levels and other business documentation – borrowers who are exemplary in this long list of areas have a good shot at being approved for a commercial loan from a bank.
Unfortunately, the banks have been slowly narrowing their guidelines, pushing more and more previously accepted borrowers out.
The Problem with Commercial Lenders Saying “No”
As commercial lending experts can tell you, tightened lending guidelines are not correlated to real-world lending demand. Construction, real estate investment, borrower circumstances, and other market factors all impact when—and where—funding is avaiable. Projects need to be completed and real estate opportunities become available, whether banks are willing to provide commercial funding or not. Simply put, even though banks continue to narrow the group of borrowers they deem as “worthy,” the actual group of reliable commercial borrowers in need hasn’t narrowed at all.
On top of this, reducing a borrower to a few numbers, a credit score, and other financials isn’t always fair. Unique details of a borrower’s situation can create a gray area where banks only see black and white. Reliable borrowers with multiple commercial mortgages, low occupancy for a property, or any other number of unique circumstances may be denied when they shouldn’t be.
Alternatives for Commercial Borrowers
While it’s up to you as a borrower to determine what kind of funding you feel is best appropriate for your situation, at Riverdale Funding, we don’t think borrowers should be judged by financial figures that don’t tell the full story. In our experience, many perfectly reliable investors are pushed to the side by banks due to income constraints, a lack of reportable liquid assets, insufficient tax returns or other financial statements, bankruptcy, foreclosure, late payments, or liens. These all can and do disqualify borrowers from getting a commercial real estate loan, but they aren’t a true representation of the borrowers themselves.
Instead, these borrowers can turn private lenders for real estate – and the flexibility of commercial hard money loans. For example, here at Riverdale, we don’t base our lending on your credit history or any other similar factor; we utilize asset-based lending (basing our lending on the value of the underlying property). Not only does this save time, but it gives borrowers access to a commercial mortgage lender when conventional lenders have said no.
Giving Yourself the Final Say with a Commercial Hard Money Loan
More and more, reliable borrowers find themselves unable to secure commercial funding from conventional lenders, but frankly, we don’t think that’s right. Hard money lenders can provide funds to borrowers whom banks have turned down and create a viable path for funding that project or once-in-a-lifetime investment opportunity.
Banks shouldn’t have the final say. Fortunately, they don’t have to.
This article is a part of our Getting a Commercial Loan: Complete 2017 Guide, a comprehensive resource for anyone looking to secure a commercial loan. Read more at the link.