Private Lenders Are an Option for Developers
Commercial property-developers can still find funding for their projects, and brokers can help
By Milton Franklin, president and CEO, Nationwide Business Consultants of South Florida Inc.
Despite market and lending
changes, commercial real estate
projects can still be financed. And
commercial mortgage brokers can position
themselves as their clients’ primary source
of information about industry changes.
They can function as guides for their clients, educating them and leading them
through the maze of funding sources.
Previously, traditional banks financed
most development projects, and they
worked within well-defined, uniform
Now that banks are less involved in
commercial funding, however, many developers are seeking alternative financing
sources for their projects. They are discovering that the new rules in place are considerably more varied — and sometimes
more flexible — than the rigid structures to
which they were accustomed. Sometimes,
this flexibility favors the lenders, but borrowers also can benefit.
In fact, developers often will find that
they now must turn to private lenders to
fund their projects. Individual lenders subscribe to
their own internal rules,
based on investors’ needs.
Brokers who understand
the private-lending world
can advise their clients on
the varying rules and help
fund their clients’ projects.
individual investors to create pools or as
funds for lending. They may also acquire
funds from large or small institutions, each
of which may have specific guidelines for
or committee reviews the projects. This
group may have established a process
whereby there must be a unanimous decision, or they may accept the findings of
a majority. Either way, the
lender’s board makes a decision to fund or decline to
fund the project.
Here is where the new
rules sometimes cause friction, especially among developers. Based on their
perceptions of the market,
they may feel strongly that
their project has merit. The
lender’s board, however, may
feel it cannot justify the financial risk and will pass on
the project. This leaves developers feeling
that they have not been treated fairly or that
the lender’s decision is wrong.
With private money, however, brokers and their clients must understand
that the rules are also developed privately. This is an unavoidable outcome
of the informal shifting of commercial
financing responsibilities from regulated
national corporations to significantly
smaller, unregulated organizational
“Developers often will find that they
now must turn to private lenders to
fund their projects. Individual lenders
subscribe to their own internal
rules, based on investors’ needs.”
Lending’s new rules
Federal and state regulations do not exist to create
uniform operating procedures for private lenders, as there are in
the formal commercial banking industry. Private lenders may use money from
Milton Franklin is president and CEO of Nationwide Business Consultants of South Florida Inc.,
which maintains direct relationships with all types of nontraditional funding sources and tax-incentive
consultants. Nationwide offers a full range of creative financing products and services to commercial
clients, in addition to partnering opportunities for commercial mortgage brokers and project funders.
A graduate of Wharton Business School, Franklin has 25 years’ experience in financial services. Reach
him at (786) 506-3578 or firstname.lastname@example.org.
lending their funds or for required investment returns. Regardless of the funding
source, private lenders must satisfy their
investors’ demands to continue to lend and
to stay in business.
Final funding decisions can follow
general guidelines by providing stipulations and limitations to which each project
must adhere, mimicking banks’ decisionmaking process. In many cases, after the
due-diligence process is complete, a board
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