How Do I Market Myself As A Real Estate Expert: Alternatives To An SBA Loan
Syndicated loans are distributed between several different lenders and investors. Syndicated loans are very large loans and are typically done for large, publicly-traded companies. A syndicated loan will have a lead lender who will provide the other pool of lenders with information about the loan.
For example, let's say a company wants a loan for $800 million. The lead bank would obtain all financial information from the borrower and distribute it to interested lenders. Those lenders who are interested would bid on a piece of the pie, and then the loan would be split up 20 or 30 ways. The lead bank would take payments from the borrower and distribute them to the other lenders in the syndications market. Brokers are rare in these situations, and when a broker is used, it is unusual to earn more than about 1/2 point on a deal.
Participating loans are similar to syndicated loans in that the risk is shared. However, the loan is much smaller and usually not more than 3 or 4 lenders participate. Often only two lenders participate. The same concept applies with syndicated loans, with a lead lender taking care of the work. Participating loans also allow the risk to be shared.
Traditional Bank Loan
Traditional banks use their depositors' money to make loans. They are taking checking accounts and savings accounts and turning them into loans. Because they are using federally insured funds (FDIC) they have a higher underwriting standard than many other loans. Bank loans are audited every year by the OCC (Office of the Comptroller of Currency) and have stringent guidelines that must be adhered to when lending depositors money. So the underwriting for a bank loan takes longer than a lender who is securitizing their deals.
The positive thing about banks is that because they do not securitize their deals, their deals do not have to "fit inside a box." As long as it is a worthy risk, they can do some very creative things. Some banks are great to broker land deals, construction deals, SBA loans or other "outside the box" deals. Most banks will generally just pay one point on any brokered deal. It is very important to ask a bank if they pay broker fees up front. If they say no, don't try to get them to do the deal or you may get cut out of the deal altogether.
Institution Loans (Securitized)
Institutional lenders that securitize their deals get very good at a certain type of product and a handful of them are good at what they do. Institutional lenders who securitize their deals will have a "box" that they have to adhere to because they pool up their loans and sell them on Wall Street. Their pools will be graded by Standard and Poor's and Moody's, and the types of loans they do will affect their rating. Of course they want the highest rating, so they only include loan types that will maximize their ratings. They typically only do multi-family properties and other standard commercial properties.
Hard money loans are generally short-term loans at a high interest rate with higher than average fees. Though they have a bad reputation, hard money loans are a necessary and very useful tool in the right situation. Hard money lenders can typically get loans funded very quickly, sometimes in a matter of days. If a borrower does not qualify for traditional financing because of a short term problem, instead of losing a good deal, they can obtain a hard money loan.
Hard Money loans always have to have an exit strategy. The lender will want to know how the borrower plans to have the loan paid off within a short amount of time, sometimes as short as 6 months and typically not longer than 3 years.