When you’re looking to finance a commercial real estate property, there may be some better short term options available than the bank.
Let me explain.
The commercial property financing process with an institutional lender is a time consuming process.
More specifically, it will likely take 60 to 90 days from the time you apply for a commercial mortgage to the time its approved and funded, or even longer.
Banks and institutional lenders are the preferred sources of commercial property financing because of the lower rates they can offer, and when you’re working with a mortgage at or above million dollars, every percentage point is going to be important.
But even more important is getting financing in place when you need it so you can avoid 1) missing out on a property acquisition, 2) take advantage of a profit opportunity, or 3) avoid incurring a cost.
Business financing should always be about the net cost of funding, not just the stated interest rate. And when it comes to getting something done in a hurry or in a predictable period of time, banks and institutional lenders are not that predictable in terms of indicating if they will fund a deal, and then when it will actually be funded.
So if time is of any concern to you when arranging a commercial mortgage, you may want to consider a private mortgage lender before even going to the bank.
Because a private lender can potentially get the lending / funding process completed in 30 days or less, providing an avenue to get capital in place when required, even if you have to pay a bit of a rate premium to do so.
And in today’s market, if you have a great piece of property and the loan to value required on financing is under 60%, the private mortgage lending rates can come very close and in some cases rival what a bank or institutional lender could provide.
Then, with business financing in place, you can take your time surveying the market and getting the best available deal where you are in control of the process and not in a take it or leave it type of scenario with time running out on the clock.
This is where the net cost of the transaction comes in.
If you end up paying a few extra dollars in interest over a year or two, but end up saving or making ten times that amount or more from having financing in place when it was required, then the cost of a private mortgage becomes cheap compared to the cost of not having the financing in place when you needed it.
If you’re at all pressed for time when trying to finance a commercial property, it can be very dangerous to assume that you won’t run out of time with a bank or institutional lender, or that the terms and conditions you’re going to sign up to for the long term are going to be acceptable to you.
There can definitely be a significant benefit attached to the potential incremental cost of an asset based loan and at the very least, the incremental cost is insurance to make sure your deal get done, or funds are available when they need to be for other purposes.