Category: Business Loan Tips.Understanding Financing

Small Businesses frequently need support when it comes to finding the right financing. Within certain industries, it’s even more of a challenge. Some lenders view companies that operate in specialized industries, under tight state regulations, with high variability in cash flow, or as a non-profit as “high risk.” Businesses like churches, realtors, pawn brokers, and casinos are rarely eligible for government-backed financing. We have experience supporting hard-to-finance industries with capital sourcing. Partnering with our brokers eliminates the need to fight with lenders who don’t understand your vision.

Your success is important to us, which is why we’ve curated a network of lenders who work in all types of industries. Some of them are industry professionals who know first-hand the challenges you’re facing. They began lending in that space to help other small businesses succeed. Others are aware of the opportunities that exist in niche industries and want to be a part of their growth. However, you won’t always find these lenders by searching online. Our brokers will connect you to specialized capital sources ideal for your business. It’s like having a tailor for your capital stack!

Here are some of the industries we support with capital sourcing. If you see your business reflected in this list and want to access financing, give us a call. Even if your industry type isn’t listed, we’re happy to review your business goals and tell you how we can help.

We find capital sourcing for hard-to-finance industries. Our brokers eliminate the need to chase lenders who don’t understand your vision.  

To maintain nonprofit status, charities, and NGOs must adhere to strict reporting guidelines and fund use restrictions. Donated funds can’t always be applied to daily operations. In that case, payroll, equipment, and construction funds must come from another source. Lenders like community development financial institutions, or CDFIs, specialize in lending to nonprofits and some of them are nonprofits themselves. Our brokers will connect you with a reliable lender when you need flexible leasing, bridge financing, asset management solutions, and more for your nonprofit business.

Religious Financing

Most churches rely on donations and tax relief programs to keep their doors open. To continue serving their communities, however, they need a financial boost for fundraising programs, remodeling, and equipment. Whether you’re providing a place of worship for Christian, Muslim, Buddhist, or Jewish congregations, we can provide loans with minimal usage restrictions. Access easy repayment options, unsecured loans, and nonrecourse loans to help your organization thrive.

Charter School Financing

On average, charter schools receive less funding each year than their district school counterparts. They’re also prohibited from charging tuition, which creates a significant funding shortfall. Some charter school teachers even use their personal funds to bring in supplies for their students. When it’s time to upgrade infrastructure, manage repairs, or pay for new gym equipment, we help charter schools with flexible, low-interest loans that meet their needs. We can recommend lines of credit, tech leases, and affordable private loans for your charter school to make high-cost purchases feasible within your monthly operating budget.

DBE & ACDBE Financing

The Disadvantaged Business Enterprise and Airport Concession DBE programs are designed to balance federal and state contracting opportunities. They operate under strict eligibility guidelines and must maintain certifications and registration. Banks and other financial institutions are historically hesitant to lend to disadvantaged groups. Our brokers partner with nontraditional lenders that focus on serving smaller communities.

Construction Financing

Construction has always been considered a “high-risk” business category by mainstream lenders because projects don’t always go as planned. Construction loan risks are also highly sensitive to market fluctuations. However, experienced lenders in this industry know how to mitigate those risks and put themselves and their borrowers in profitable positions. If you’re seeking a construction loan for your next project, ask our brokers to connect you with our specialized lending network. Your specialized business needs specialized funding, not one-size-fits-all financing from lenders who treat you like a number. Our brokers will learn about your company and the future you want to create so we can provide the best options to get you there. With access to our exclusive lender network, you’ll be building your next milestones with the confidence the right funding can provide.

Despite the Fed’s higher-than-expected interest rate cut in September, the effects will be slow to creep into the CRE funding market. Pressure from the oncoming wave of debt maturity, valuation difficulties, and weak demand means lender expectations are set to change in 2025, resulting in a more competitive financing environment. Developers on the fence about borrowing should act sooner rather than later as lender appetites for construction may quickly change. 

That said, performance in sectors within CRE is beginning to diverge so that a few stand out as more resilient than others. Developers will need to work closely with brokers to identify unique opportunities and take advantage of a few important strategies for success.  As lenders impose more restrictions and change their criteria, you can be prepared to pivot to meet these challenges with customized advice from your brokerage.

Current Conditions

On September 18th, the Federal Reserve announced a drop in rates by 50 basis points. The next day, banks announced the new Prime Rate of 8.0%. The resulting surge in the S&P 500 over the following weeks demonstrates how much the change excited investors. But the Fed has made it clear this isn’t a sign of a new trend. Since CRE loan rates are based on much more than the Prime Rate, it has less impact on lending than it might appear.

Supply chains are still fraught with headaches, causing many projects that have already broken ground to stall. Lenders in some cases have granted loan extensions to avoid a mass of defaults. However, when those extensions expire in 2025, they’ll add to the trillion-dollar maturity wave expected to hit next year.

Banks, especially regional banks, and life insurance companies remain the main sources of debt financing for construction. Banks have pulled back leverage from 75% loan-to-cost (LTC) to as low as 50%, meaning borrowers have to find new ways to make up the difference. Equity financing is where the real challenge lies. Those lenders have tightened interest rates and loan terms, now using higher exit rates and debt service coverage ratios (DSCR) in their underwriting.

2025 Predictions

Many CRE sectors are likely to see a dramatic slowdown in growth, but it’s not even across the board. Retail and office will remain dismally low as difficulty in predicting future performance causes lenders to shy away. On the bright side, the numbers for warehouses, data centers, and manufacturing look strong at 40% of the nonresidential market, even if the overall industrial sector has stalled. Reasonable growth expectations for institutional, healthcare, and amusement properties are at 4%, with the most potential in education (per the AIA). This growth could be impacted by immigration levels (which are closely tied to election outcomes). In terms of lending, the slower sectors are likely to see less loan availability than higher-performing sectors.

The bigger banks will see higher defaults as a result of the maturity wave than smaller, regional banks will. There’s also more inherent risk for lenders in leased properties than owner-occupied ones. When borrowers default, the hit to lenders drives CRE prices downward. Diminished ability to meet debt-service requirements also applies downward pressure on available loans. To protect against this risk, lenders now require higher exit rates and DSCRs in their underwriting.

Finally, Some Good News

The key to success is to act now before the lending environment worsens. Our team provides individualized advice based on your business goals and objectives, and helps to clarify how lender expectations have changed overall. Achieving financing goals at this stage may result in less competition in the near term.

Though 2025 may become a challenging environment for new construction financing, there is still opportunity in 2024. By acting before the close of the year, there is the opportunity to gain long-term benefits like a competitive edge over developers who delay, leading to a better position in the market when financing access improves.

In particular, look for financing outside of big banks to find non-traditional lenders who won’t face the same risks. Our team is here to help you match your project to the right financing. We will help you capitalize on what remains of the positive market conditions before the end of the year.

As we close out Q3 of 2024 and head into Q4, you might be considering a few debt adjustments to your budget. In light of end-of-year predictions, it could be time to refinance and lower those obligations. Whether refinancing is right for your business depends on your reasons for wanting to refinance and the current state of your business. You don’t have to wait for the results of the Fed’s September meeting to start preparing.

State of the Market

So far this year, the Fed hasn’t changed interest rates for the better or worse. However, it’s expected to decide its first rate cut this September. Some economists expect a 25 basis point reduction, while others anticipate 50. Any reduction would drop the Prime Rate from the 8.5% we’ve seen since July last year. It would also be the only decrease expected in 2024.

The Congressional Business Office, which provides budget analysis for Congress, projects a 3.9% unemployment rate and 2.7% inflation for Q4. It also expects economic growth to slow over the next two years. Financial advising firm Vanguard expects a key measure of inflation, called the core PCE index, to go up from its current rate of 2.6%, affected by past year price comparisons. The labor market, however, should remain strong for the rest of the year.

What That Means for Refinancing

Given the economic forecast for Q4, it’s time for businesses to gear up for a refinance as a rate cut in September could lead to better than current borrowing terms. As inflation drops, companies might face lower input costs, but not necessarily enough to offset debt. Refinancing debt can help businesses manage it more effectively. Given the expected slower economic growth, locking in a lower interest rate through refinancing before the end of the year could be a prudent move. This ensures lower debt service costs in a potentially less robust economy.

Refinancing Benefits

If you’re on the fence about refinancing, there are significant cost savings to be had if you do:

• As your current debt becomes due, you may be expected to provide a balloon payment to close it out, depending on the type of loan. However, if current economic conditions make that unviable for your business, refinancing can help you avoid it.
• Having high-interest loans can drop your credit score. When you refinance to a lower-rate loan, it can boost your score. If your business was new when you got your original loan, having built more experience since then may mean you qualify for a lower interest rate.
• If your current loan isn’t serving your purposes anymore, you can change the type of loan you have by refinancing. For example, shake off the high-interest debt from short-term financing by refinancing with a long-term mortgage.
• Refinancing from floating to fixed-rate loans can lock in rates before they rise again. Fixed rates also make it easier to plan and budget, knowing exactly how much you’ll need for every payment.
• You can access equity with a cash-out refinance to fund expansion projects. The new loan, based on your current equity, pays off the original loan, plus provides liquid capital.

As a whole, the more businesses are looking to refinance, the more lenders are pressured to offer competitive rates, which benefits you and other small businesses.

Refinancing Example

Many new small businesses opt for merchant cash advances to help them with short-term capital injection. With a merchant cash advance, you receive money quickly without enduring a rigorous qualification process. In exchange, you agree to give a percentage of future sales to the lender. You end up paying back the initial debt, plus a high interest rate that cuts into your profits. Typical rates can be as high as 50%.

SBA loans are capped by the federal government, so lenders can’t bump rates above a certain level. Right now, the rate on an SBA 7a loan maxes out at 15% and gets lower the more you borrow. To bring the concept into focus, here’s an example calculation on a $200,000 loan. First, let’s look at the most common loan small businesses take out, the Merchant Cash Advance with its estimated 50% interest rate:

$200K x .5 = $100K in interest | $200K + $100K = $300K required repayment

Now, let’s look at an SBA 7a revolving line of credit at an estimated 15% interest rate:

$200K x .15 = $30K in interest | $200K + $30K = $230K total cost

As you can see, refinancing into an SBA loan represents a substantially lower cost to your business than keeping the original MCA. In addition, a working capital line of credit allows you to pay it off on your own schedule (either increasing or decreasing your cost of money based on your repayment timeline). A revolving line of business credit allows you draw on it whenever needed, providing a safety net for your business.

With a $200,000 working capital line of credit a business could save $70k per year and have a better tool for supporting their business as compared to taking out an MCA loan.

Preparing to Refinance

Once you’ve decided to refinance, your best bet is to do it before the end of the year. Given that it’s an election year, existing incentives for certain types of projects could go away or shift depending on the new administration. The election results will affect the market, no matter who wins, complicating predictions for 2025’s economy.

Your first steps to refinancing should be to gather your paperwork and review your current loans. You’ll need to understand your current rates before you seek lower rates. Review your credit score history to see if you’re in a favorable position to take advantage of lower rates. Finally, check your agreements for any penalties your current lenders may charge for refinancing.

One important thing to remember is that you don’t have to consider refinancing alone. It’s advisable NOT to go it alone. Brokers prove invaluable during a debt transition, offering expert advice, the latest loan rates, and customized refinancing recommendations. You’ll get all the information you need to make the wisest decision for your company, instead of wasting time with debt you don’t need.

Increasing your credit limit on a business line of credit depends first on which type of line you have. Your lender will base their decision on whether you’ve secured the line with assets or opted for an unsecured line. Secured and unsecured lines of credit both have their pros and cons, and your strategy for appealing to your lender must be different for each type. Partnering with a loan broker is the best way to get customized guidance, but this article will give you the basics you need to get started.

Business lines of credit are a convenient source of working capital on an as-needed basis without the high interest rates of credit cards. Unlike many business loans, they aren’t tied to a specific purchase, providing maximum financial flexibility. Another distinct advantage they have is the option to choose between secured and unsecured credit. Secured lines work best for companies with strong asset portfolios. Unsecured lines benefit businesses with high credit scores and net income.

Secured Lines of Credit

For a secured line of credit, your business must supply collateral assets. These assets lower the lender’s risk, which promotes lower interest rates for borrowers. Should you fail to pay back the loan, your creditor is entitled to recover the asset. The amount you can borrow is tied directly to the value of your collateral asset, whether it’s real estate, equipment, inventory, or accounts receivable.

Asset values are subjective and determined by the lender, even if you have an appraisal done on the asset. It’s common to get around 80% of the value of a property, so be sure it’s worth more than you need to borrow or be prepared to offer multiple assets to secure the loan. If you have a line already and your asset has appreciated, let the lender know its new value so they can consider approving you for a higher credit limit.

Secured Lines are best for:

• Businesses that tend to carry a balance
• Startups without an established credit history
• Borrowers that require more capital than an unsecured loan provides
• Companies seeking a long-term loan

Before choosing a Secured Line of credit:

• Remember that the lender may seize collateral assets if you default on the loan.
• Some lenders require a personal guarantee, making you personally liable for the loan.
• If your asset depreciates, the lender can request additional assets to secure the loan.

To increase a Secured Line of credit:

• Invest in revenue-generating activities to increase cash flow and annual income.
• Offer the lender additional collateral or prove collateral appreciation.
• Make sure you’ve met any benchmarks in your original contract.
• Meet your payment deadlines and minimums consistently.

Unsecured Lines of Credit

Like most business credit cards, an unsecured line of credit requires no collateral to secure the loan. Instead of using an asset’s value as a basis, unsecured lines are based on cash flow and margin. One primary benefit of unsecured lines of credit is that you won’t risk your business’s assets if you run into a problem with repayment.

Although getting an unsecured line of credit relies more heavily on your credit score than with a secured line, it’s not impossible to get one if you have bad credit. You may, however, end up with a higher interest rate or a lower credit limit than you would with good credit. Ask your broker to show you options for unsecured lines that fit your credit profile.

Unsecured Lines are best for:

• Companies with a strong credit history and good credit scores
• Businesses that don’t want to provide collateral assets
• Borrowers who want to fast-track the approval process
• Small business owners with lower capital needs

Before choosing an Unsecured Line of Credit:

• Lenders mitigate their risk on unsecured lines by charging higher interest rates.
• An unsecured line may not offer enough credit to meet your goals.
• Unsecured lines often have stricter qualification requirements.

To increase an Unsecured Line of Credit:

• Increase your cash flow and net income.
• Stay on top of your credit score – business and personal.
• Keep your loan documentation up-to-date with your lender.
• Be prepared to show how your business will benefit from the additional credit.

Our team is here to help you secure and expand your available business credit throughout your business lifecycle. Our brokers will advocate for you with your lender and help position your business to get approved for the right limits at each stage of growth. We offer expert advice for managing debt, increasing cash flow, freeing up capital, and raising your credit score. Ask us how we can find you the best deals on new lines of credit, too!

Whether this is your first time investing in commercial real estate or you want to learn how to do it smarter, the key is finding the right type of loan. In broad strokes, you can think of hard money financing as a short-term plan and a mortgage as a long-term strategy. But the two aren’t mutually exclusive. You can start with a hard money loan and convert to a mortgage later. Even if your business has the liquidity to purchase property without financing, that’s not always the wisest choice. Read on to learn more about CRE financing for your small business.

Hard Money Financing

A hard money loan is a loan that is secured by assets, usually from a private lender. For example, you can use a hard money loan to tap into the value of an existing property without liquidating the asset. If your multifamily housing property is worth $1M and you take out a hard money loan for 80% of the property’s value, you’ll receive $800K in financing. The loan eliminates the need to sell the first property before acquiring the second. But you can also build out your portfolio by retaining both properties.

Here’s a quick breakdown:

• Pros: Hard money loans enable fast property acquisition. They can be approved quickly, and you don’t need to wait to sell old property. These loans also work well for businesses that don’t have the credit to qualify for traditional bank loans.
• Cons: Hard money loans often have higher interest rates because of their short terms and higher lender risk. These loans also require collateral, which can present a barrier for businesses without many assets.

Acquisition

Hard money loans enable you to “buy and hold” or “buy and resell” property quickly. They make expanding your business easier, whether you need more space or want to take over more territory. If this is the first property for your business, you can use the new property to secure the loan. Hard money loans also give you an advantage in the market because you can make a cash offer.

Rehab

Hard money lenders can base your loan on the ARV or After Repair Value of the property, giving you more than its purchase price. You can then use the extra funding for the renovations. If you’re flipping properties, the faster you can get to work, the faster you’ll build revenue. Hard money lenders approve loans in a matter of days or hours versus the several days or weeks you might wait on a traditional mortgage. If you don’t plan to retain the property for 25 years, you won’t want to pay for a 25-year loan.

Bridge Financing

Bridge financing covers your immediate costs while you wait for another source of funding, whether it be a mortgage or revenue. Investors often use this financing for income-generating properties like hotels and rentals. The bridge loan pays for the cost of the property, which you can pay down once the property starts earning. Rehabbers use them to bridge the gap between their initial investment and the property’s resale.

Commercial Mortgages

Commercial mortgages are long-term loans designed for investors who intend to retain property for many years. In contrast to hard money loans, they don’t necessarily require existing assets to secure. If you’re looking at a loan from a bank, the SBA, or the USDA, you’re looking at a commercial mortgage. They often have amortization periods that outlast the loan term, reducing the interest you pay over the life of the loan. Since they’re less risky for lenders, they come with lower costs than hard money loans.

• Pros: Commercial mortgage payments are less than what you’d pay on a hard money loan, which lets you keep more capital each month. They also require lower down payments and have lower interest rates.
• Cons: Commercial mortgages take longer to approve and can have a lengthy application process, which isn’t ideal if you need to act fast.

Long-Term Ownership

The average commercial mortgage is 7-10 years with a 30-year amortization schedule. That makes them the best choice if you’re retaining the property in your portfolio rather than reselling. Longer-term loans – up to 25 years for an SBA loan – are also available to reduce costs even more.

Buying Over Time

Commercial mortgages allow you to build equity. As the balance decreases with each payment you make, the property appreciates, adding to your overall equity position. You can leverage that equity to finance other investments. With a variable-rate loan, you can potentially pay less for the loan overall than if you paid for the property all at once. That’s because your interest rate can drop over time.

Reducing Down Payment

Commercial mortgage down payments can be as little as 10% of the loan. That’s 10-20% less than a down payment for a typical hard money loan. That makes mortgages a better choice if you don’t have the cash for a large down payment. Lenders expect you to be around for the long term, so they view these loans as less risky.

Despite the differences in hard money loans vs. commercial mortgages, you might still wonder which fits best with your particular business’s overall goals. The easiest way to get over this hurdle is to meet with a broker. Our brokers save you time and money by matching you with the right lenders faster than you might find on your own. Because of our exclusive lender relationships, we can also find better deals.

 

Whether you’re investing for the short or the long term, a broker is your best tool to get it done right.  Learn more about our Hard Money offering and how it can help you secure quick approvals, fund renovations, and take advantage of lucrative opportunities. Don’t wait—contact us today!

Between showing properties, creating listings, processing agreements, and staying on top of marketing, how much time do you have to help buyers shop for financing? Can you connect buyers to the best lenders for their industry at the snap of a finger? Do you want to spend less time generating leads and more time closing deals? These are questions every real estate broker should be asking. The answer to all of them is partnering with a loan broker.

Financing is key to any commercial real estate deal. Without it, there is no deal. While some super brokers hold both a real estate license and a broker’s license, most do not. If you’re not dual-licensed, partnering with a loan broker is key to closing deals smoothly and quickly. We handle the financing your buyers need to back the deal. Plus, we take the load off your desk. Still not convinced? Here are more ways a loan broker can boost your real estate business.

Contingency Clauses

A financial contingency clause in the real estate agreement protects your buyer from liability if they hit an economic barrier. Having the buyer back out, however, doesn’t do either of you any good and doesn’t endear you to the seller either. All three of you want to close the deal smoothly and a loan broker can facilitate that.

We build our business on forming lender relationships so we know who’s more likely to approve the financing your buyer wants. Many lenders will turn down a loan if they don’t receive a complete application the first time. Some lenders won’t even reveal the reasoning behind a loan denial or follow up to ask for more information. A broker will help your buyer gather all required materials into a competitive application package and secure a pre-approval. This way your buyer can stay protected and is more likely to stick with the deal.

Lenders like to remain open to a range of borrowers, but may only specialize in one area. Loan brokers know which lenders to target for your buyer’s industry and property class. Don’t let buyers waste time shopping around for the perfect lender. Don’t waste your time on bad lenders. We filter out the bad apples and the bad deals, saving you and your buyers time, money, and hassle.

Financing at Every Level

You don’t need a loan broker’s license to know many types of loans exist. Not all lenders, however, offer all loan types. If your buyer isn’t sure which loan category to look for, we can help them assemble a multi-layer loan approach that covers their needs. We can also help borrowers select from a range of financing types prior to packaging. Our broad selection of financing solutions lets you stay flexible with buyer demands.

We have options from senior debt lenders like banks and traditional lenders. This part of the capital stack makes up the majority of the financing. It’s usually the longest-term and lowest-interest part of the package. Our lenders are experienced, reliable, and in it for the long haul. With a deep understanding of the mortgage industry, they’re dependable and transparent.

Mezzanine loans are essentially a bridge between senior debt and equity financing. Mezzanine lenders are often specialized and take on more risk than traditional lenders. Therefore, they are more selective when approving CRE loans. Since most mezzanine loans aren’t secured by collateral, they cost more than loans offered by senior debt lenders. Working with a broker reduces the costs associated with mezzanine financing through exclusive lender deals.

Brokers connect directly with equity investors eager to invest in your buyer’s industry. Equity investors usually want a different view of your buyer’s business than a traditional lender, since they’re focused on growth. We help present your buyer’s deal in the best light to attract investors who will compete for a chance to finance it. Let us put together a clear return profile they can’t resist.

Marketing Support

Buyers looking to purchase real estate are looking for property and financing. So, it makes sense that real estate and loan brokers would have many of the same clients. When our borrowers want to connect with properties in their area, we want to refer them to a real estate broker we know and trust. That could be you!

Lenders commonly use brokers to find investment deals. This relationship allows us to streamline the financing process by facilitating contact with buyers. You can think of our brokerage as the hub where lenders, buyers, and real estate professionals meet. When you help buyers navigate the sale smoothly, they talk, and word of mouth is a powerful marketing tool that generates leads.

In a nutshell, having a relationship with a loan broker:

• Provides pre-approvals for your buyers
• Ensures a complete application goes to the lender
• Supports your marketing efforts and generates leads
• Offers easy access to flexible financing at any level
• Updates you during the financing process to help you stay on track
• Filters out bad lenders so you and your buyer save time

If you want to make strides with your commercial real estate business, partnering with a loan broker can make it happen. Contact us today about building a referral relationship so that together, we can close more deals faster.

When you seek a business loan, you can look at it from the perspective of sales. In this case, you’re selling the idea of your business’s profitability or value to the lender. Your pitch demonstrates how likely you are to return the lender’s investment (the loan) in full and on time. To secure a loan, you must make your business look as enticing as possible.

Many businesses, however, are more accustomed to pitching to their customers rather than to lenders (and rightfully so). That’s one reason it can be so challenging to get the capital they need. The loan application package must be complete, attractive, and meet both the lender’s stated criteria and any underlying criteria they use to make judgements but may not make available to the public. Most lenders also have a preferred borrower profile they like to lend to.

Top reasons lenders deny small business loans:

• The business lacks a formal business plan
• Too many applications to too many lenders at once
• Missing paperwork or errors in the application
• Applying to the wrong lender

Your business’s credit report and time in business play into the lender’s decision, but they’re certainly not the only aspects of your business the lender will look into. Some will also delve into the personal credit of your business’s primary stakeholders and potentially even perform background checks on them. Others primarily concern themselves with the value of assets held by your business.

The bottom line is that you need a lender with an appetite for your category, risk profile, and unique characteristics of your business. Be choosy about who you apply with and careful about how you apply. If all of this sounds a bit overwhelming, fear not. You can make your loan application shine, get lenders to compete for you, and get the capital you need faster by partnering with a broker. Let’s delve deeper into choosing the right lender and how your broker can help you succeed.

Online Lenders

Most of us are used to looking online for things we need. If we need a loan, it’s usually our first line of inquiry and it leads us straight to online lenders. Online lenders appear to be fast, convenient, and free of the hassle of meeting face-to-face. Much of that can be true, but that doesn’t make them the best-fit lenders for your business.

Online lending is mostly for low dollar amounts – $200,000 or less. That’s a problem if you’re acquiring a new business, buying property, or onboarding certain types of equipment. These are called application-only loans because they don’t need to look at your business’s books. That means they don’t get to know you or your business’s specific needs. So, while these loans can close fast, they are rarely thoughtful.

What to Consider

You’re on the hunt for a small business loan, but not just any loan will do. It’s important to look past the flashing dollar signs and see what’s really being offered. Here are some of the main components of a loan to consider before signing on the dotted line.

Speed

So you’ve found a lender who says they can release the funds to you within 24 hours of approval. Sounds great, but what’s really going on here? In most cases, what you gain in speed you sacrifice in interest rates. Because the lender hasn’t taken the time to get to know you, they don’t have a full picture of your risk profile. So, they’re mitigating their own risk by charging you an interest rate that helps them cover their risk.

If you aren’t in a rush, you’ll almost always save money with a slower loan. That can mean a long-term loan such as a commercial mortgage or a thorough application process like an SBA loan. But, if you can’t wait, there are still ways to boost capital without paying a high price.

Amortization

Amortization, in loan terms, is basically how much of your monthly payment goes toward your principal and how much goes to interest. Usually, the percentage of interest is higher when you first start the loan and lower toward the end of the term. The amortization period can also extend past the loan term to give you lower monthly interest charges. However, the remaining interest amount will be due in a lump sum when your loan ends.

Depending on how quickly your business is growing, you’ll benefit from a different amortization period. But a generic loan, like those online lenders offer, doesn’t consider your growth because the lender doesn’t require you to submit that information to apply. A broker who knows your business goals will automatically eliminate loans with an amortization that doesn’t fit, so you don’t waste time on the wrong loans.

Terms

Your loan term is how long you’ll be paying on the loan before it’s paid off. Generally, short-term loans have higher interest rates than long-term loans. If your business is flipping commercial properties, however, you don’t want a standard mortgage. Since you’ll see a return on your investment in the short term, it doesn’t make sense to keep the debt longer. But with a long-term loan, you’ll run into early payment penalties and other fees for paying it off early.

Fees

If you’ve ever read a fee schedule in detail, chances are you had to squint to see the fine print. While lenders are required to disclose their fees, they don’t always do so in the most accessible ways. Fees can be substantial and if you’re not prepared for them, can be an unpleasant surprise to closing your loan.

A good broker knows what fee structures should look like, given a particular level of risk. We will have likely already crossed a lender with unreasonable fee structures off our list of potential matches. It’s just one way we save you time, effort, and money.

Interest Rate

If you’ve received a loan offer, especially if your applications haven’t been successful in the past, you might think you’re stuck with the interest rate on the page. But, that’s not always the case. Even if you are in a high-interest loan right now, you can step down into a lower rate either with the same lender or a new one. Without submitting another loan application, however, how do you know what you qualify for?

We remain up to date on current terms, rates, and underwriting criteria for multiple lenders to help our clients access the best terms and rates given market conditions. We also know which lenders specialize in the financing type you need and the industry you represent. That narrows down the selection to just the lenders who are worth your time.

How Brokers Help

Our primary role is to simplify the search for a loan and properly package your application to demonstrate the value of your business to lenders. Here is a recap of the benefit we provide to borrowers:

• We customize loans to fit your business.
• We help you determine which loan terms are the best fit.
• We clarify lender fees and conditions and weed out bad lenders.
• We build relationships with lenders to get reduced rates for their clients.
• We build an application package that’s accurate, complete, and lets your business shine so you don’t have to repeat the process every time you apply.

Your chances of being approved for the loan you want with the rates and terms that fit your business always increase when you work with a broker. Again, you need a lender with an appetite for your category and risk profile. The fastest, most accurate way to find that lender is through a qualified broker.

So the next time you’re hunting for a business loan, don’t use the “shotgun” approach and submit to every lender you find. With every stray bullet, your credit score and your chances for approval go down. Be precise, accurate, and better equipped to succeed. Reach out to our team for a free assessment. We are happy to point the way.

What Are Agency Loans?

Agency loans are types of mortgage loans that are guaranteed by government-sponsored enterprises (GSEs) such as Fannie Mae, Freddie Mac, and Ginnie Mae. These entities do not directly offer loans to consumers, but they do purchase and guarantee loans from banks and other lenders, ensuring liquidity in the mortgage market. By providing this backing, agency loans often come with more favorable terms, including lower interest rates and smaller down payment requirements. This makes homeownership more accessible to a broader range of buyers. The guidelines set by these agencies also ensure a level of standardization and reliability in the lending process.

The benefit of agency loans on commercial investors

Agency financing often presents a more attractive financing option for residential investors. Federal agencies guarantee a variety of loan types, including multifamily real estate. These guarantees take on a variety of options. The loans typically offer favorable interest rates, flexible terms, and a lower down payment compared to conventional or private financing. With the involvement of agencies such as the Federal Housing Administration (FHA), the Small Business Administration (SBA), and the United States Department of Agriculture (USDA), borrowers can enjoy a greater level of access to capital, allowing them to expand their holdings, and thereby their revenue-generating capacity.

Several major agencies play pivotal roles in providing agency financing, each with unique programs tailored to different borrower needs. Among these, Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation) stand out for their significant contributions to the housing market. Fannie Mae and Freddie Mac operate in the secondary mortgage market; they purchase mortgage loans from lenders and either hold these loans in their portfolios or package them into mortgage-backed securities that are sold to investors. This process provides liquidity, stability, and affordability to the mortgage market.

Fannie Mae focuses on expanding access to affordable housing and has a variety of programs aimed at helping low-to-moderate-income borrowers as well as investors in affordable housing. Meanwhile, Freddie Mac, since its inception, has similarly worked to make homeownership and rental housing more accessible and affordable. Both agencies offer competitive rates, flexible down payment options, and programs designed to assist multifamily real-estate investors seeking loans of $1m or more.

By targeting loans for our clients that are likely to be purchased by these agencies, we further our commitment to helping clients navigate the complexities of home financing and secure the best possible terms for their needs.

Purpose of Government-Sponsored Enterprises (GSEs)

Government-Sponsored Enterprises (GSEs) are instrumental in stabilizing and improving the infrastructure of key sectors, particularly the housing finance system. The primary purpose of GSEs is to enhance the flow of credit to specific markets, making loans more accessible and affordable for borrowers. By acting as financial intermediaries, GSEs such as Fannie Mae and Freddie Mac help maintain the liquidity, stability, and affordability of the housing market.

These entities purchase mortgage loans from lenders, allowing those lenders to recuperate funds and issue new loans, thus creating a continuous cycle of lending activity. This not only facilitates homeownership for millions of Americans by providing more favorable lending terms but also supports the broader economy by promoting investment in residential property. Furthermore, GSEs often focus on underserved areas and populations, ensuring that low- to moderate-income families have greater opportunities to access affordable housing. Through their various programs and initiatives, GSEs work to mitigate risk in the housing finance system, offering a buffer against economic volatility and helping to sustain long-term market confidence.

Fannie Mae and Freddie Mac Multifamily Real Estate Terms

Loan Programs: Fannie Mae and Freddie Mac offer a range of loan programs designed for multifamily properties. These include fixed-rate and adjustable-rate mortgages, with terms typically ranging from 5 to 30 years. Their loan programs often offer competitive interest rates and flexible terms to accommodate the diverse needs of property investors.

Loan Amounts: The loan amounts can vary significantly based on the property type, location, and the borrower’s financial strength. Fannie Mae and Freddie Mac typically work with loans ranging from as low as $1 million to over $100 million, ensuring they can support the development of both small and large-scale multifamily housing projects.

Underwriting Standards: Both agencies have stringent underwriting criteria to mitigate risk and ensure loan quality. These standards evaluate the property’s financial performance, location, condition, and the borrower’s creditworthiness and experience in property management.

Affordable Housing Initiatives: Fannie Mae and Freddie Mac place a strong emphasis on supporting affordable housing. They offer specialized loan products and incentives to encourage the development and preservation of affordable multifamily housing, targeting low- to moderate-income families.

Green Financing Programs: Recognizing the importance of sustainability, both agencies also offer green financing options. These programs provide lower interest rates and better terms for properties that meet energy efficiency and water conservation standards. This not only helps to reduce operating costs for the property owners but also promotes environmentally sustainable communities.

By offering these diverse and flexible financial products, Fannie Mae and Freddie Mac support the multifamily housing market’s stability and growth, ensuring that developers and investors have the necessary resources to meet the housing needs of communities across the United States.

Historic Perspective: How Agency Loans Contribute to Liquidity

Agency loans contribute significantly to liquidity in the real estate market by providing developers and investors with reliable access to funding. Historically, before the establishment of modern financial institutions and structured loan programs, property buyers faced substantial barriers. During the Great Depression, prospective homeowners and developers were often required to pay with cash or secure high down-payment, short-term loans that came with a balloon payment at the end. Such financial constraints severely limited homeownership and development opportunities, as few could meet these rigorous requirements.

The introduction of agency loans by institutions such as Fannie Mae and Freddie Mac dramatically transformed the financing landscape. These government-sponsored enterprises were created to stabilize the mortgage market, particularly in response to the economic challenges of the Great Depression. By purchasing mortgages from lenders, Fannie Mae and Freddie Mac infused liquidity into the market, allowing lenders to extend more credit to borrowers. This backing provides a layer of security for the lender, which translates into several key benefits for developers.

Just like buyers, lenders also faced significant challenges before the formation of Government-Sponsored Enterprises (GSEs) like Fannie Mae and Freddie Mac. Without organizations to buy mortgages from lenders, financial institutions had to rely heavily on their own available capital. This restricted their ability to extend new loans, as they couldn’t easily sell existing mortgages to quickly free up funds. As a result, lenders’ capacity to provide mortgage financing was severely limited, contributing to the overall lack of liquidity in the real estate market and exacerbating the barriers to homeownership and property development.

By guaranteeing the loans, Fannie Mae and Freddie Mac help ensure longer loan terms and lower interest rates. This extensive support lowers the risk for lenders, allowing them to offer more favorable terms than what might be available in the open market. For developers and residential real estate investors, this means reduced monthly payments and improved cash flow, providing more financial stability throughout the life of the project. This, in turn, made long-term, amortized loans more accessible, reducing the financial burden on property buyers and developers. Today, agency loans continue to play a crucial role in maintaining market liquidity. They offer standardized loan products with predictable terms, making it easier for borrowers to secure financing and for lenders to manage risk. By providing a steady flow of capital, these loans ensure that the real estate market remains vibrant and responsive to both economic fluctuations and the evolving needs of developers and investors.

Preparing to apply for an agency loan from Fannie Mae or Freddie Mac involves thorough preparation to enhance the chances of approval. One of the first steps is to ensure creditworthiness. Lenders will scrutinize the borrower’s credit history, and a strong credit score demonstrates financial responsibility and reliability. Therefore, borrowers must check their credit reports for errors and address any outstanding issues prior to application. Additionally, borrowers should document their experience in managing and developing multifamily properties, as Fannie Mae and Freddie Mac prefer applicants with a proven track record of successful projects. A comprehensive business plan is also crucial. This plan should outline the proposed project’s specifics, including market analysis, property details, projected income, expenses, and management strategies, clearly demonstrating the project’s viability and potential for success.

In addition to creditworthiness and a solid business plan, borrowers must provide detailed financial statements. These include personal and business assets and liabilities, income sources, and outstanding debts, which help lenders assess the borrower’s financial health and ability to manage loan repayments. A professional appraisal of the target property is necessary to determine its current market value, assuring lenders that the property is worth the investment and can support the loan amount. Legal documentation, such as property deeds, zoning approvals, and existing loan agreements, should be in order to prevent potential legal issues and delays.

Finally, borrowers should be prepared to provide a down payment, typically ranging from 20% to 30% of the property’s purchase price, along with adequate cash reserves to cover unforeseen expenses and demonstrate financial stability. By carefully preparing these essential elements, borrowers can enhance their loan applications, positioning themselves as credible and capable candidates for multifamily financing from Fannie Mae or Freddie Mac.

Contact us BEFORE you apply for your next agency loan

With a deep understanding of the complexities involved in multifamily financing, we specialize in helping developers and property investors prepare meticulous loan packages that reduce delays in the loan process. Our team guides clients through every step of the process, from conducting thorough market analyses to compiling detailed financial statements and ensuring all legal documentation is in place.

Moreover, we have built robust relationships with a network of reputable lenders that meet Fannie Mae and Freddie Mac guidelines. We make sure that your loan application is presented to the most suitable financial institution for your particular transaction. By leveraging our expansive industry knowledge and connections, we enhance your project’s visibility and viability, creating a pathway to needed financing. Contact us today to navigate the intricacies of agency loans with confidence and precision.

Selling direct to end consumers is a solid way to capture margin and reduce the sales pipeline. B2C interactions are also a great way to build community, especially if you operate locally through a brick-and-mortar shop. The success of a B2C business, however, varies depending on its products, positioning, and price point. High-ticket items may seem out of reach, but ticket price is not the only factor in how customers perceive affordability.

So how do you manage the perception of cost to sell equipment, appliances, furniture, jewelry, and projects? Consumer financing enables customers to buy right in the store and break down the ticket price of high-value items into manageable monthly payments. Not only does consumer financing take away some of the sticker shock that can come with high-quality merchandise, but it can help to shorten the sales cycle for customers who have to “save up” to make a purchasing decision. This type of financing does not require your business to set up its own lending division, however. It’s much simpler than you might expect.

How It Works

The easiest way to set up consumer financing for your business is by working with a third-party lender who can offer funding at the time of purchase. The lender handles credit checks and payment processing so you don’t have to. Your business receives full payment from the lender while your customers pay the lender in installments. If you sell online, the lender’s software can be integrated into your website so customers never have to navigate away from your brand. In exchange for this convenience, the lender typically charges a low, flat rate, plus a small percentage of the sale.

Types of Consumer Financing

What can a third-party lender offer your business in terms of consumer financing? Depending on your business model and needs, you have several options.

• Point of Sale (POS) – Offers quick credit decisions at the moment of purchase from your company’s register or website, often used for impulse buys.
• By Now, Pay Later (BNPL) – Offers a short-term, typically interest-free way to pay in equal installments, often used by online consumers.
• Lease-to-Own – Offers an avenue to ownership without paying the full purchase price upfront, often used for furniture and appliance sales.
• Installment Loans – Offers a longer payment plan option with low interest rates and scheduled payments, often used for equipment sales.

These are four of the most popular options, but consumer financing can also take the form of cost deferment, lines of credit, and credit cards too. If your business has a specific option in mind, talk to our Commercial Loan Advisor about finding the right financing partner.

Benefits of Consumer Financing

The ways B2C businesses can benefit from consumer financing are essentially the same across the different types. In addition to providing more consumer spending options while providing immediate payment to your business, consumer financing has a long list of benefits.

• Increased Sales – Once your customer leaves your store or your site, the odds that they’ll purchase from your business drop dramatically. Consumer financing encourages them to stay focused on your brand.
• Customer Loyalty – Customers will remember a business that can accommodate their needs without making them feel financially excluded. They’ll be more likely to return to your location in the future.
• Improved Cash Flow – While your customers don’t have to pay the full purchase price upfront, your business still sees full payment right away. Consumer financing makes it easier to manage cash flow and fund growth.
• Move Inventory Faster – Because your customers can walk away with the item they want or schedule service immediately, you can bring in new inventory to reach more customers faster.

How might your business profit from improved cash flow and a broader customer base? Have you been putting growth on hold while you wait for cash flow to increase?

How to Set Up Consumer Financing

Now that you’ve seen some of the benefits of offering financing to your customers, how do you implement a consumer financing system? While you can do the work of developing your business as a lender, working with a third-party lender takes away risk and headache. It’s important to connect with a lender that understands your business model, matches financing with your price point, and integrates smoothly into your sales process since not all lenders have the same level of experience.

To find lenders who offer robust financing at the most advantageous terms for your business, talk with a member of our team. A broker can quickly filter out lenders who don’t have the flexibility you need or knowledge of your industry. We work with you to determine the size of the program and lending partner that benefits you most, and that can scale and grow with your business.

With consumer financing, you have a tool to overcome the “not the right time to buy” justification. Your broker will help you affirm that any time can be the right time to purchase from your business.

April saw 2024’s first bank failure when Republic First bank closed on April 26. The bank failed to reach an agreement with The Norcross-Braca Group, which, in September 2023 committed to invest $35 million if the bank submitted its report and scheduled a required shareholder meeting.

The bank, which previously announced plans to exit its mortgage lending business, also had issues with internal controls and declining deposits. After the bank did not file the report, Norcross-Braca backed out of the deal. The bank pointed fingers at its own executives, citing a “failure to maintain adequate internal controls.” Looking into the recent past, the bank’s auditor told the bank in 2022 that it had weaknesses in internal controls in the area of reporting.

Internal controls in banking help banks limit risk and protect assets by applying a systematic and policy-driven approach to achieving the bank’s objectives. The board and senior leaders are responsible for these controls. Internal and external audits and creating a culture of compliance, where doing the right thing, and speaking up about errors and omissions so they can be proactively corrected, help establish the right environment for banking. Republic First was quickly acquired by Fulton Bank of Lancaster, Pennsylvania, with a minimum of downtime for bank customers.

Why is mortgage lending more difficult in a high-interest-rate scenario?

In a high-interest-rate scenario, mortgage lending becomes significantly more challenging for both lenders and borrowers. Higher interest rates increase the cost of borrowing, which translates to more expensive monthly mortgage payments for prospective homeowners. This can lead to a decrease in the pool of qualified borrowers, as many individuals may find themselves unable to meet the stringent financial criteria required to secure a loan. Additionally, higher rates often dampen demand in the housing market, resulting in fewer transactions and a slower market overall. Lenders may also face higher risks, as borrowers are more likely to default on their payments when faced with elevated interest costs, prompting stricter lending standards and more cautious underwriting practices.

Commercial real estate faces ongoing challenges following COVID

The COVID-19 pandemic had lasting effects on the commercial real estate environment, particularly evident in 2024. The rise of remote work and an increased preference for flexible working arrangements led to a significant underutilization of office space. Many businesses reassessed their real estate needs, opting for smaller or more versatile office solutions, thereby reducing demand for large commercial properties. Additionally, economic uncertainties and shifts in business operations caused by the pandemic prompted companies to be more cautious about long-term leasing commitments. This resulted in higher vacancy rates and pressured landlords to offer competitive lease terms and concessions. Consequently, the commercial real estate market experienced a period of stagnation and adjusted property values to reflect the decreased demand and utilization.

Loan-to-value and the refinancing crunch

The drop in property values can further exclude prospective borrowers from the market. As property values decrease, the loan-to-value (LTV) ratio becomes a critical factor in lending decisions. Typically, banks are willing to lend up to 80% of the property’s total value. However, as property values decline, the equity that borrowers can leverage diminishes, making it more difficult for them to meet this threshold. Consequently, many property owners are now facing challenges when attempting to refinance their properties, as they may no longer possess sufficient equity to qualify for favorable loan terms. This predicament exacerbates the existing credit crunch, ultimately stifling the recovery of both residential and commercial real estate markets.

Will banks continue to close?

The bank closings in 2023 and this recent bank closing in 2024 each present unique scenarios influenced by the specifics of the banks involved and their investment strategies. While rising real estate market uncertainties and escalating interest rates increase the risk for banks heavily invested in real estate loans coming due, it is the composition of each bank’s overall loan portfolio that largely determines their vulnerability. For some banks, a high concentration of real estate loans coupled with significant exposure to volatile markets heightens their risk. Conversely, other banks may face challenges due to a diverse yet risky portfolio that includes unstable sectors or high-risk investments, such as leveraged loans or speculative ventures. The balance, or lack thereof, within these portfolios dictates their susceptibility to economic fluctuations and financial instability, ultimately influencing their likelihood of closure.

For the most part, experts are optimistic and do not anticipate sudden expansion in the market.

Overcoming barriers to financing for borrowers

When banks are unable to lend, borrowers can turn to private money lenders as an alternative source of financing. Private money lenders are typically individuals or private companies that offer loans secured by real estate or other assets. These lenders often provide more flexible terms than traditional banks, making them a viable option in challenging market conditions. Borrowers can leverage private money by showcasing the value and potential of their assets to secure funding.

Additionally, private lenders may be more willing to take on higher risks, making it possible for borrowers with lower equity or those involved in high-risk ventures to obtain the necessary capital. By forming relationships with private money lenders, borrowers can access quick and customized funding solutions, enabling them to refinance properties, invest in new projects, or maintain liquidity during economic downturns.

Contact our team if you have faced loan declines or you anticipate a challenge accessing funding for your real estate acquisition, refinance, construction, or retrofit. We will help you create a roadmap to funding and will conduct the hunt for capital on your behalf.