At one point in time, the only lender available to entrepreneurs was the bank, but not there are several types of commercial real estate lenders to choose from.
There was a moment in time when the only avenue one had to satisfy a need for a commercial loan was the bank or “that guy” your buddy knows that charges an insanely large interest rate and gets aggressive if you miss a payment. That is certainly not the case anymore as several different types of commercial real estate lenders have developed over the years and are now available to meet existing demand.
While it is nice to have options, depending on your intended purpose, one type of lender may be better suited to meet your needs than another. But to figure out which one is right for you, it helps to have a better understanding of your options.
Six Most Common Types Of Commercial Real Estate Lenders
Before you get started looking for a lender, you should review what the six most common ones are:
– Banks: An oldie but a goody, banks have been involved in commercial real estate loans for centuries and likely always will be. They tend to have a significant amount of capital at their disposal (thanks to their deposits) and will get involved in a variety of types of projects. When looking into banks, it is important to keep geography in mind. Local or regional banks are more likely to only approve loans for projects in their region or community. Nationwide chains are typically not too concerned with geography.
– Life Insurance Companies: if you think about it, it makes sense that they would be involved in the commercial real estate. They have millions of people paying premiums, so they have capital on hand. However, they can’t afford to take risky loans and tend to gravitate towards safe, long-term projects with reliable returns.
– Bond Market (commercial mortgage backed securities): These are loans backed by bonds that may be as safe as can be to some that entail a lot of risks, but hold the potential for greater reward. The market is monitored by independent rating agencies that provide bond buyers with the information they need about investments.
– Debt Fund: this is an investment opportunity that allows investors to get involved in lending and/or buying loans. Investopedia.com defines a debt fund as “an investment pool, such as a mutual fund or exchange-traded fund, in which core holdings are fixed income investments.” They are common among construction loans
– Government Sponsored Entities: The purpose of these is to achieve some sort of public purpose by having a government created and controlled entities get involved in private financial dealings. They are not direct lenders but allow other institutions to originate a loan and then assume it.
– Marketplace Lenders: This is simply an online lender that matches a borrower with the appropriate investors. Crowdfunding is a common type.
Which Type Is Best?
When figuring out which of the many commercial real estate lenders you should go with, it can help to understand where they came from. Of course, if you aren’t sure which is best, talk to a few and ask questions. The ones that want your business will answer as honestly as they can, even if it means possibly losing your business.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.