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The Private Lending Market

Updated: Nov 17, 2023

Why do real estate owners turn to private lenders for their financing needs?

Business Meeting

Debt is a large part of the investment landscape. Just think about it - banks' assets consist primarily of loans. Large companies take out loans in the form of "bonds" and individuals have loans in various forms (auto loans, credit cards, home loans, etc.). In fact, the "debt" market is the largest investment class in all investment options. Further to that, real estate is the largest asset class globally and is very capital intensive, meaning the large portion of buyers/owners of real estate need financing to purchase.

Private lending fulfills an important niche in the real estate finance market. Traditional lenders (i.e. banks, agencies such as FNMA, and the bond markets) tend to be painfully slow, highly conservative, and lack creative solutions to challenges. While "in the box" lending has a large place, private lending provides value add capital to the equation.

At Anderson Roberts Financial, we focus on loans secured by income producing commercial properties. Commercial properties are those which are held typically as investments rather than someone's principal residence. Commercial properties are generally owned by professional real estate investors who own one or more investment properties.

Investors come to private lenders for a multitude of reasons such as:

  1. Not Ready for Prime Time: A property is not yet ready for "prime time" meaning it's not currently suitable for a conventional lender. This may be due to situations such as temporary vacancy or a repositioning play to increase the property value. Private lenders can bring creative solutions to the table not available to conventional lenders.

  2. Crunch Time: Timing does not allow for the luxury of bank financing. We all know banks are slow and laborious in their loan decision process. A particular financing scenario may not allow the time necessary for a bank to get to the finish line. By contrast, we can move quickly to help satisfy a borrower's financing needs.

  3. Opportunity and Certainty of Close: Many borrowers are less sensitive to costs than to the certainty of getting across the finish line to funding. As private lenders, we are more creative in structuring, quicker to fund, and can quickly respond to issues that arise during underwriting.

  4. Cash-Out: Conventional lenders often say "no" to cash-out scenarios where a borrower sees an opportunity and desires to tap equity built up in another property. As a private lender, we allow cash-out for identified uses.

  5. Credit Blemishes: Borrowers at times have credit issues that are temporary in nature (versus a pattern). This may preclude them from obtaining a conventional loan thus missing an opportunity. As a private lender, we selectively review the specific issue and determine the likelihood a borrower will meet their obligations.

AR Financial drives to bring the right capital to a situation at a reasonable cost to enable our borrowers to achieve their financial goals. Our investors are rewarded with excellent yields for participating in our lending activities.

Contact us to learn more!



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