Predictably, the majority of calls I’m getting these days are from businesses that have been hit hardest by the current recessionary impacts.
Most of these financing requests are either for securing incremental capital for business operations or refinancing a banking relationship where the bank has demanded repayment of the outstanding facilities.
In both cases, the business financing challenges are significant to due to poor near term financial performance, high levels of unsecured debt, and strained overall credit.
Getting the bank to provide additional credit or to work with the business through a down turn can be difficult if not impossible.
In many cases, the long term business survival requires the use of alternative financing sources that will require higher financing costs that relate to higher levels of risk.
If the business owns real estate, the cheapest possible financing solution is private mortgage financing of commercial property.
By the time other financing sources are being considered, the business is already in a cash flow crunch and time is of the essence, which plays well with the private mortgage options as they tend to be able to be put into place much faster than conventional commercial real estate mortgages.
But private mortgages are also far from automatic for commercial property. Unlike residential property that can predictably be resold within a certain value range within a certain time frame, commercial property can take years to sell if the lender was required to take action against the security to receive repayment of a mortgage.
So while private lenders are not going to be as fixated on all the near term financial red ink, they will be interested in the property value, the strength of the resale market, and the business’s prospect’s for a short term turn around. Because private funds are typically only provided for one or two year terms, the lenders need to see that the potential exists for a viable exit strategy at the end of the mortgage term at which time the borrower would transition back to a conventional commercial property lender at lower rates.
Private mortgages do cost more money, but this is a trade off to assure that the business is not interrupted or shut down which can happen if the business owner is overly persistent seeking cheaper forms of financing that take longer to secure and are harder to get in place when the business is in a distressed or semi-distressed state.
If you find yourself in this position and would like to explore private mortgage financing options, give me a call so I can provide a free assessment of your most likely options.