Be prepared when presenting a loan to a private-money lender

Richard Bookbinder, founding member, TenRock Capital LLC

As published in Scotsman Guide's Commercial Edition, October 2006.

One of the greatest financial challenges for today's commercial borrowers and brokers is to get a package right for lenders the first time. As Benjamin Franklin said, "By failing to prepare, you are preparing to fail." With the recent hikes in interest rates and tightening of underwriting standards by traditional lenders, private lenders are being bombarded with loan requests. In the shifting landscape for short-term or bridge loans, private lenders operate with strict and rigorous time schedules. They are constantly challenged to provide quick turnaround times for responses, term sheets and fundings.

At the same time, many private-money borrowers have projects that are financially sound but that simply don't qualify for traditional financing. Or they may be unable to secure traditional financing because of a poor credit rating, low net worth, insufficient project cash flow or documentation issues. These borrowers rely on brokers to help them submit a comprehensive loan-application package that fulfills prospective private lenders' expectations and requirements.

The funding inquiries that will gain the greatest traction are those that are clearly presented with comprehensive, accurate, orderly and timely flow of documentation. The success or failure of the loan request rests, more than anywhere else, on your shoulders.

A solid application package

From a private lender's perspective, a broker has numerous options to ensure a smooth, rapid loan-review process.

First, the broker should contact the lender to determine if the borrower's desired loan terms meet the lending and underwriting standards. The initial discussion between the broker and lender should include the following points:

• Loan size, type and term
• Geographic requirements
• Amortization
• Lien position
• Rate and points
• Collateral type (residential, land, office, multifamily, etc.)
• Purpose for which the loan is being requested (refinance versus purchase)

Once the broker has narrowed down the list of eligible lenders, the broker and borrower should compile an information package that the lender can use for a preliminary review. Borrowers should provide as much as possible of the following:

• Completed application
• Executive summary, including a description of the project and proposed financing
• Breakdown of all costs and uses of proceeds
• Historical financial statements
• Financial projections
• Source of repayment
• Recent appraisal or estimated date of appraisal completion. If an appraisal is not available, a realistic independent evaluation of the property should be provided
• Title-insurance commitment

Page: 1 2 3 Next