Bank loans are Credit Based Loans and are available only to Borrowers with excellent credit and strong financial statements, who are seeking to finance property that produces Net Operating Income equal to 125% to 140% of proposed loan payments.
Asset Based Loans encompass the broad category of loans that Banks won’t make and are therefore sometimes referred to as “Non-bankable Loans”. While Borrower’s credit and finances may be a factor in establishing the interest rate and the amount of the loan, they are rarely the primary factor in making the loan decision. With Asset Based Loans, the primary criteria are the value and desirability of the property that will be pledged as collateral for the loan.
Because Asset Based Loans are made to Borrowers who do not qualify for bank loans, interest rates are higher–typically 10% to 15% at present. Also Loan to Value ratios are lower–typically 50% to 65% of the value of the property. However, in cases where the property is especially desirable or in which the property has strong cash flow, loan to value ratios of up to 75% are possible.
Most often Asset Based Loans fall into the category sometimes referred to as “Bridge Loans” because they are short term loans used to upgrade properties (rent out vacant space, rehab or correct other short term problems) so that they can be refinanced with cheaper bank loans. However, they can be longer term loans used to finance properties that banks won’t finance.
A unique feature of Asset Based Loans is that because they allow subordinate financing, the Borrower’s equity requirement is usually lower than that required by Banks. Currently most Asset Based Lenders require only a 10% equity investment by the Borrower and will allow Sellers to carry back Seller Financed 2nds equal to the difference between 90% of the property value and the amount of the Asset Based Loan. Another unique feature is that the 10% equity requirement does not need to be in cash. See the section of this website entitled “100% Loan to Value”.
We have two Asset Based Loan programs:
Direct Loans — These loans are made by our affiliated companies and investors and are typically limited to a maximum of $250,000, but on very strong applications may be higher. The Guidelines described below, apply to these loans.
Brokered Loans — These loans are made through 3rd party non-affiliated Lenders where we act as the Borrower’s representative for loans greater than $250,000. Depending upon loan needs and Borrower qualifications, there are a wide variety of programs available, but the Application in the Loan Application section of this website is enough to get the process started and determine if a loan is possible. If so, we will require the potential Borrower to sign our Loan Broker Listing Agreement.
GENERAL GUIDELINES FOR DIRECT LOANS:
➢ Loan Amounts: Typically $250,000 or less.
➢ Loan to Value Ratios: Up to 55% (see Additional Collateral below) on properties appraised for $200,000, or less, and 50% of value over $200,000 (on rehab, value is as completed)
➢ Loan Position: Except in rare situations with very strong borrowers with large equities in quality properties, our loan must be in 1st position.
➢ Minimum Equity: On non-rehab (see rehab loans below) purchases, Borrowers must pay 10% down and the balance of the purchase price can be a Seller Financed 2nd.
➢ Property Types: We will consider all property types except owner occupied 1-4 unit residential properties. Lower LTVs apply to land loans.
➢ Loan Terms: Up to 5 years with option to renew for one additional term equal to the original loan term. Longer terms have higher loan fees.
➢ Payments: Typically payments are based upon a 20 yr. amortization schedule, but we will do interest only on one year rehab loans.
➢ Interest Rates: A minimum of 12% with semi-annual adjustments tied to the prime rate.
➢ Loan Fees: $3,500 plus 4% of the loan amount, with an increase of 1% for each year of the loan term in excess of one year. Thus, the fee for a 5 year loan will be $3,500 plus 8% of the loan amount.
➢ Rehab Loans: All rehab loans require additional collateral equal to 25% of the total loan amount.(See requirements for additional collateral below) At closing of the purchase, Borrower must fund the greater of 20% of purchase price or 10% of the purchase price plus loan fees and closing costs. The balance of the loan will be disbursed as rehab is completed. Each construction draw will incur a $100 administrative fee. Borrower must provide evidence of sufficient funds to cover all rehab costs not funded by the loan, with a 25% contingency, and must be able to demonstrate financial capacity to make interest payments for one year without rental income from property being rehabbed. Since purchase/rehab transactions, that are profitable, usually require fast closings, prospective borrowers for these types of loans are encouraged to submit full Loan Applications and information on additional collateral prior to trying to acquire properties to rehab.
➢ Additional Collateral: By pledging other real estate with substantial equity, the Loan to Value Ratio can be increased. In addition, if the Borrower has weak credit, limited income or experience, additional collateral may be required. Additional collateral is subject to the same loan to value ratios as the primary collateral. However 2nd positions will be considered with a combined loan to value ratio 5% lower than the requirement for first position loans.
➢ BOTTOM LINE — WE ARE EXPENSIVE LENDERS BUT CHEAP PARTNERS!