Knowing what fits and doesn’t fit isn’t just essential when you’re online shopping and deciding what jean size to go with (hint: never go with “one size fits all” jeans). In fact, brokers know all too well the importance of having the “right fit” for their commercial clients—especially in 2021.
The small-balance commercial mortgage industry is changing fast post-Covid-19, so much so that lenders are probably updating their guidelines as I write this article. But the good news is that all these changes give brokers another opportunity to get ahead of the competition.
Case in point: Small business owners and investors want to work with loan officers who understand the current commercial landscape and can help them secure the right deals. This means that now more than ever, brokers need to identify how commercial lenders are changing so they can be someone’s go-to loan officer.
It all comes down to knowing your craft. While good brokers can name all the different lender types in the industry, great brokers will be able to pinpoint exactly which lender is a good fit for their client’s scenarios. Knowing why Lender X is better than Lender Y can take you the extra mile and help you succeed in your business because borrowers want and need to work with someone who knows how to navigate the lender spectrum.
Below we outline three key lender types (and how they compare to our services at Silver Hill Funding, LLC) to help you and your borrowers find the best fit for your scenarios.
Don’t be surprised if your client wants to go to the bank first. Banks are usually the first choice for small business owners because they already have a working relationship with them (bank account, credit cards, etc.) and may think it’s easier to do business in the same place.
Traditional banks require a strong credit history, full documentation, and generally give the green light to standard, low-risk properties (think: Multifamily). So if your client fits all these requirements, a traditional bank may be the right fit.
Unfortunately, this isn’t always the case. As you probably know from your clientele, borrowers and their scenarios come in all shapes and sizes. More often than not, your client may require more flexibility. Although banks offer attractive interest rates and multiple financing options, their credit requirements and underwriting rules may be difficult to overcome when trying to secure funding.
- Lower interest rates
- Multiple financing options
- Convenience and accessibility
- Cumbersome application process
- Lengthy approval process
- On-going reporting requirements
- Shorter loan terms (5-10 years)
- Borrower with strong credit history
- Borrower who can provide full documentation
Hard Money Lenders
Do you have clients that have absolutely no time to waste and need a quick solution? Consider partnering with a hard money lender. Unlike banks, these lenders allow borrowers who don’t meet the traditional requirements to secure a speedy loan.
But here’s the catch: While hard money lenders do have plenty of benefits—less stringent approval process, faster access to capital, and potential flexibility in the repayment schedule—they often carry higher interest rates and have shorter terms (think: 6 months to 3 years) than other commercial lenders.
Borrowers also generally lean towards hard money loans when they need fast cash. Perhaps they want to perform property repairs or maybe they need to tap into their assets to start a new business venture. Whatever the reason, a hard money loan can open doors for them.
Additionally, it’s important to note that the reason these loans get approved faster is because the lender examines the collateral rather than the strength of the applicant’s credit.
- Streamlined underwriting process typically resulting in faster closing timelines
- Ability to finance credit-challenged borrowers or transitional properties
- No depository relationship required
- Rates and fees tend to be more expensive
- Lower leverage
- Less government oversight
- Borrowers who require fast closings
- Borrowers who miss bank eligibility
- Borrowers with poor financial standing
Now if you’re in need of a partner that has a blend of both traditional banks and hard money lenders, then you’ll want to work with non-bank alternative lenders. These have the ability to offer the best of both worlds: competitive interest rates and more flexible borrower requirements.
It’s true—this happy medium gives borrowers more opportunities to secure loans, especially when it comes to property type. Remember a few paragraphs ago (see: traditional banks), the property you’re trying to fund can have a significant impact on whether or not you close your deal. While banks are generally strict with property eligibility, non-bank lenders are known for lending on a wide range of properties, from multifamily to automotive properties.
Alternative lenders are also more likely to offer less restrictive cash-out refinance options, which can make all the difference for the investors and small-business owners who seek commercial mortgage financing.
Finally, borrowers can expect more options with alternative lenders when it comes to loan terms. They generally can choose from permanent or bridge loans and get longer terms (15 to 30 years).
Silver Hill Funding
So where does Silver Hill fit in the lender spectrum? As a non-bank lender, we fit in the middle between traditional banks and hard money lenders. Our programs offer alternative solutions for borrowers who don’t necessarily meet bank requirements, but still want to benefit from competitive rates and benefits.
However, much has changed since a global pandemic hit our communities. We’ve had to get stricter with our guidelines and underwriting processes, inching us closer to the traditional bank side of the spectrum. The good news? Our teams are continuously adapting to the changing small-balance commercial landscape.
If you think Silver Hill is the right fit for your current scenarios, you can head this way to see our current programs and guidelines. Our team can help you and your clients find the best solution for you today.
Now that you’ve got the full rundown on three key lender types, you can make an informed decision on which lender will best fit your scenarios.
Remember – the commercial mortgage industry is changing every day. That’s why it’s crucial to stay in the loop on all program changes. The best way to do this is to contact your different partners to learn first-hand what offerings they have for you and your clients.
Building strong relationships with each lender type will help take your business (and clients) to the next level in the commercial industry.