Tough Money Financing and Conventional Financing - Commercial Financing's Only Alternatives?

With banks limiting the amount of lending they are currently offering and tightening underwriting standards, conventional financing is acquiring more and a lot more tough to obtain. Tough funds financing is a viable alternative and frequently the only choice for several projects. Nevertheless, let's assume that you either do not wish to go the tough funds route or wish a higher loan to value or loan to price than a difficult cash loan permits. What other option is accessible?

Stock secured loans or liquidity lending are an outstanding alternative for those borrowers who have significant holdings of marketable securities, including stocks, bonds, treasuries; nearly and financial instrument that can be traded.  This sort of financing frequently permits the borrower to maintain the securities in their own account(s) exactly as they are present held retaining the exact same marketplace appreciation and the same benefit that interest or dividends generation.

The amount that can be financed depends on the financial instrument. On the high end are treasury securities where it is feasible to lend on up to 99% of the value of the securities. On the low side of are lower grade stocks, where up to 50% of the value can be borrowed. Corporate bonds, municipal bonds.

Other advantages of this kind of program consist of:

* Low interest rates of around three% above the libor rate (presently 2%)

* Quick funding usually 7 - 10 days

* Funds can be drawn instantly or as a line of credit

* Securities remain in the possession of the borrower earning full returns

* Terms of 90 days to 5 years

* Subject property can stay unencumbered

* Funds can be used for virtually any purpose

* No prepayment penalty

* Funds may be used as equity behind a first mortgage

* Credit, income, employment are not crucial, depending on the program

Here are a couple of examples of how this sort of financing can benefit a borrower.

A developer has partially finished construction on a hotel when either his funding source dries up or he runs out of funds. He has a 1st loan for $5 million and requirements $three million a lot more to complete the construction. When completed, the value will be approximately $9 million. Virtually no bank will lend in this situation. He has marketable securities valued at $4 million in multiple accounts at different investment houses, wants to continue earning full returns and doesn't wish to move or liquidate them. A liquidity lender can provide a $three million line of credit secured by the securities. The developer completes the project and after a period of time obtains conventional financing.

An additional example is a developer who wishes to develop a commercial project but requirements a higher loan to value than is being offered. The borrower needs $8 million to build the project and to make the project feasible, requirements 100% of the cost to build in financing. Once again, no bank will touch this. If the borrower has marketable securities we frequently do a loan for 65% of the price and use the marketable securities to fund the additional 35% to reach the 100% financing objective. The securities stay in the borrowers account, continue earning full returns and they don't have to move or liquidate them.

This kind of program is generally obtainable for up to $100 million in financing, can frequently be used with foreign securities and enables borrowers to fund projects that may not be fundable by means of either difficult cash or conventional financing. In the present tight credit market, this is an extremely attractive choice of financing for borrowers with marketable securities.


Commercial Loan Financing Resources