Commercial Credit Facilities: The 4 C’s
Consider the essential steps to finding the best value for you and your company
By Dan Murphy, director of business development, RBA Capital
Some brokers might be familiar with the “four C’s” used to judge
a diamond: cut, color, clarity and
When evaluating credit facilities — or
a loan or collection of loans — there also
are four essential C’s to consider: commitment, composition, cash management and
cost. Here’s a look at each.
Brokers should start by asking if their financial institution is committed to its business
or is funding on a deal-by-deal basis. In the
present market, many credit facilities are
being trimmed or disappearing altogether.
For example, consider a financial institution that does not understand private lending
and has issues with its portfolio. It may view
your hard-money portfolio with relatively
higher interest rates as having greater risk
than what is on its books. Or it might seek a
broad array of property types and locations,
disregarding that you work within a select
niche of property types and geographies.
Some finance companies do not understand
that most private-mortgage companies protect themselves by only funding loans at
lower loan-to-value (LTV) ratios.
A shaky credit structure from a company that is not committed to your operations could prove detrimental to your
business, reputation and future viability.
Portfolio composition is another important
factor. Do both sides understand expectations for loan terms and property types?
Can creditworthiness be traded for LTV?
What is the process and timing for placing
assets on the line for funding? In private
lending, re-underwriting every loan can
hamper the speed that is vital to the deal.
Each financial institution should work
with you to develop a broad outline of
eligibility criteria for the types of loans it
These basic guidelines — property type,
loan-amount range, geographical areas and
LTV range — align with your expertise and
help minimize conflicts. But they should
not act as hard rules.
3. Cash management
Although cash management often is overlooked, it can add to your operations. Cash
management for some institutions simply
means their management of your income.
Some financial institutions are more
concerned with their interest and fee collection from your portfolio versus the value
that your portfolio can achieve.
Basic cash management includes payment collection and application. Important
features include the flexibility of funding,
managing funding amounts and repayment
of the facility.
These aspects of a credit facility will impact you and your operations. Effective cash
management allows your operations to benefit from the flexibility, availability and reliability that a true credit facility provides.
Costs are much more than rates and fees.
Your funding source’s performance will
greatly affect your own performance.
Factor in the opportunity costs or benefits realized from your lender’s ease to fund,
flexibility, ability to work with you and willingness to share best practices.
Although interest rates and advance rates
impact your return on investment, commitment, composition and cash management
impact your company’s performance and
drive your bottom line. What value does a
committed lender provide you? What risks
and costs come if your lender does not define its composition? What costs come from
an ineffective cash-management strategy?
These factors are critical when you evaluate a credit facility. The cheapest price tag
is not always on the best buy — and a high
price doesn’t always guarantee quality. What
makes a difference is dealing with a finance
company that shares your commitment,
aligns with the composition of your portfolio, provides strong cash-management functions and provides the best cost value.
Dan Murphy is director
of business development
for RBA Capital. He is
responsible for all marketing initiatives and for
originating lines of credit
for hard-money lenders. Murphy has more
than 20 years’ experience in the banking and
financial-services industry with GE Capital,
GMAC, Prudential Insurance and Citizens Bank.
Reach him at (610) 230-5080, ext. 205, or
email@example.com. To learn more, visit
– Direct Commercial lender
– Anywhere in North America
– Up to 70% LTV
– 2 Day Commitment
– Simple Submission
– 10 - 15% Interest only,
1 - 5 YEARS
– Loans from $500,000 to
we provide Private Hard Money solutions,
which can enable you to seize any commercial
real estate opportunity
800.587.1502 ext. 1