Daily Observations - When Will the Lenders Return?

This is the number one question that I am being asked every day. When will they return, and start to lend money again, when will credit be freed up, when will it trickle down to us again?

I have no idea! But the important point is that everyone I talk to is waiting for that magic event to happen, Free up Credit. Credit may never be freed up again the way we have seen it over the last couple of years. If you were breathing you could get a loan.

I am here to share that there are certain boutique lenders that are still doing business opportunity loans for QUALIFIED borrowers. The best advice at this point I can share with you is stick to the 5C's +E , pre-qualify everyone and when you have a strong borrower Don't Give Up, there are lenders out there that still want good deals.

Loan packaging and presenting of the loan has never been more important than it is now. Deal with a qualified loan developer/packager and you will get your deal done, if it makes economic sense to the lender as well as to yourself. Lenders still have their prohibitive lists so stay away from those areas that most lenders do not like, ie Start-ups, Restaurants, Rolling Stock based companies.

If you are thinking about purchasing a business and are going to be looking for Gov't Assisted Financing programs like the SBA, then buy a business that is manufacturing rather than service oriented. With manufacturing there is more collateral and usually less goodwill.

Banks do not like to finance goodwill, they consider it pie in the sky, and they want the seller to carry the value of the goodwill.

For more on SBA Loans visit loanforbiz.

Daily Observation - Waiting...Cost her the Deal

Tonight I want to share with you an experience that has replayed itself over and over during the last couple of months. Procrastination cost the deal. While clients were debating the interest rates, the fees or any of the other myriad of excuses for not moving forward, when they finally decided it was time to move, the lenders left the arena.

Got a call today from a potential client in AZ, she wanted us to finally move on the biz op she called me about over forty-five days ago. I regrettably told her that the lender that was offering the program which I was confident I could fund was no longer offering the program. What was she to do?

We had to go back and completely restructure the proposal, by adding in the option of her buying the building rather than renting with the option to purchase a year out. We also have to have her put up a substantial amount of collateral, something that was not even contemplated forty-five days ago.

In essence her waiting to make a decision has cost her a lot more now that we may be able to fund the deal, but all of her property will have to be collateralized and she will also have to purchase the building. The building is less than the biz op so I still have our work cut out for us to find a lender.

For more on the creative process we take visit Loanforbiz.

Daily Observations - Long Term Leases May Be the Answer

As more and more lenders are saying No to lending on commercial investments for various reasons, there may be a glimmer of hope if you can structure your deal accordingly.

We had one deal for a refinance and cash out for a commercial office complex and we were told that there was too much risk. The reason there was too much risk is that the property was only 85% stabilized, and leases were considered short term; two years or less.

Three months ago the lenders would have loved this deal, but today 15% unstabilized is a MAJOR issue. Also the fact that the stabilization is not three years old or greater as I have mentioned on a previous blog was a deterrent as well.

Well, we went back to the borrower and had him go to each of his tenants to increase the term of the lease from the two years that he had to a minimum of five years in most cases. The extra three years of the lease has made the lender take another serious look at the deal. Don't know if they will fund it yet, but we have moved past the immediate no to the package gathering stage.

The point is not if they fund this one, the point is for you to always be thinking out of the box to represent your client to the best of your ability.

For more on Loanforbiz visit our website, we are still closing deals.

Daily Observations - Biz Ops No More , WHY?

Tonight I want to address why I believe that Biz Ops or Business Opportunity loans are becoming the dinosaur of 2008.

Some people would say the reason is that the banks are being tighter on credit, and that is the reason they do not want to lend on biz ops. Others may point to the lack of collateral for a business opportunity as the reason why the lenders don't want to lend. Still others will suggest the high failure rate of businesses in today's economy. And all of these answers would be right.

BUT...

I don't believe that they are the real reasons. I think the answer is purely greed of the lending community. What do I mean, I can hear you asking yourself? The answer in plain simple English is that the banks don't have a secondary market to sell these loans to anymore.

Before this debacle lenders would sell their SBA 7A Biz op loans to the secondary market for at least five to ten points, yes you heard me correctly five to ten points. Now there is no one to buy the loans, so why do them anymore. So even if Credit is loosened up as both Presidential candidates are advocating do not expect biz ops to be re-instated unless the secondary market comes back and lenders can once again sell their loans.

For more on the lending process ask me about our 95 page Special Report, GET Your Loan Closed!

Daily Observations - I'm So Excited

GUESS WHAT?

I found a Lender that wants to lend, they will lend on any commercial property with normal underwriting guidelines as long as there is cash flow. Almost sounds like the way it used to be. They are even closing loans regularly the BDO told me.

So what's the catch I asked Him. How can you ignore what everyone else is "hung up" on and still be closing loans regularly.

Here's his answer as long as the client will deposit 20% of the loan amount in our bank we will approve their loan subject to normal underwriting requirements.

Here's a thought...If the client has an additional 20% to be put in the bank over and beyond their down payment do you think they really need a loan? That probably means in terms of a straight commercial loan 60 to 70% down including the extra CD at the bank, with CAP rates as low as they are. I might be exaggerating somewhat to make my point, but I don't think I am off the mark that much. Lower CAP Rates means lower net cash, and when you compare it to the higher purchase price, down payment has to be increased accordingly.

For a thorough discussion of this point and the Ten Secrets your lender does not want you to know email me about our Special Report; GET Your Loan Closed! with over 95 pages which is now available.

Daily Observations - The Times They're Changing (Again)

Another interesting side note, as we go further and further down the road of tightening credit.

Tonight I was told by a very good lender that we have done a lot of deals that no longer will a property owner be able to refi a property and pull equity out unless they have owned the property for over two years. Yes you heard me correctly two years.

Gone are six months, and then a refi. Lenders want to know what someone paid for the property and that is still going to be the value unless they have done a great deal of changes to the property to help increase the income. But wait...

The increased income has to be stabilized for at least three years before they can count the new source of income. So PGI (Potential Gross Income) will not be taken into consideration anymore.

Oh wait, there 's still more. The lenders do not want to repay anyone for improvements that they made to the property even when it results in increased income.

So if I sound a little bit sarcastic tonight I'm not, I just want to report exactly what is occurring out there so clients and friends know exactly what is going on.

Yes we still can do loans, There are boutique local lenders that we can still entice with good deals. For more on this visit loanforbiz.

Daily Observations - Biz Ops... A Thing of the Past?

"Biz Ops" as they are affectionately called by us professionals are business opportunities. Loans for acquiring a business where there is no real estate involved in the transaction my be a thing of the past, or at least on hold for quite a while.

Once again today another major lender which happened to specialize in "biz ops" informed me that they are no longer in the business of lending to anyone unless the deal has real estate as its primary component. Some may lend on the "biz ops" if they have real estate as part of the sale others are not lending on the "biz op" portion at all.

There are still a few boutique local lenders that will entertain "biz ops" but the list every day is getting smaller and smaller. I was presented today with an interesting statistic, 1/3 of all the SBA Lenders throughout the USA have stopped lending their capital. The reason, NO secondary market; no one to purchase the loans and pay the bank a premium for those loans.

Since there is no secondary market all loans have to be held by the funding bank as a portfolio loan. Therefore the lender wants bricks and mortar as security not "pie in the sky" ie goodwill, etc.

For more on commercial loans that we are still closing visit loanforbiz.