How Private Lenders Offer More Flexible Commercial Property Loans

The options for sourcing money for commercial loans are expanding just as rapidly as the commercial sector itself. The changing landscape in urban areas is fuelling a need for commercial development at a rapid pace. Organisations are sometimes finding that chasing finance from a bank is too slow and full of red tape. Private lenders are growing in popularity due to their flexibility in loan options, assessment criteria and repayment options.

Read on to find out the great ways private lenders are becoming more attractive to commercial developers and helping projects get a quick start up.

What is a Commercial Loan

A commercial loan is a debt-based funding arrangement between a financial institution and a corporate entity. It is used to fund major projects that need a significant capital injection, or to cover operational costs that the company may otherwise be unable to afford.

Collateral is usually required to secure a commercial loan such as property or equipment.

Assessment for qualification is based on business financials rather than personal financials and terms can run both short-term and long-term, often for decades.

These types of loans are designed to help businesses grow or manage cash-flow and acquire significant assets.

Major Differences Between Traditional Lenders and Private Lenders

Private lending is where you borrow money from an individual or a lending business that is not identified as a traditional bank. A traditional bank, in this sense, is often one of the Big Four Banks in Australia, or from one of the smaller, second tier banks or credit unions.

• Assessment CriteriaPrivate lenders are asset-focused with their assessment. They value the property and potential income, not just the borrowers ability to service the loan. This focus on the project and not the borrower makes it great for financing unique development.
• EligibilityWith banks there are stricter eligibility terms and conditions which need to be met to qualify for a loan. Some businesses can find it more difficult to obtain funding from banks if they have credit issues or don’t have a traditional income source.
• CostsWhile there may be stricter eligibility criteria with a bank, this process does allow for lower loan rates and cheaper loans in the long run. Private lending may be easier to obtain, but it does mean they’re more expensive to service.
• Bespoke Loan StructuringPrivate lenders have the ability to tailor commercial loans for borrowers, far more than a bank does. They can customise interest rates, repayment schedules and security collateral requirements based on their assessment of the project, rather than the individual. Banks lack this flexibility.
• Speed and EfficiencyPrivate lenders tend to be able to approve loans and get the finances to commercial projects faster than traditional banks can. There is also often less paperwork with a private lender, shortening the waiting and approval timeline. If you have a time-sensitive commercial project, often a private lender is the best option for you. This gives businesses quick access to capital they wouldn’t otherwise get with a traditional bank.

• Bridging FinanceThis speediness of private lenders is ideal for bridging finance for urgent projects and deals that need to be snapped up quickly, something traditional lenders would not do.
• You can Start SoonerWith the speed and efficiency of private lenders, less paperwork and quicker processing times, your ability to start a commercial project sooner is greatly increased.
• Higher Approval RatesPrivate lenders offer higher approval of loans to commercial borrowers than traditional banks and credit unions. WIth their flexible and bespoke conditions they can apply to each and every loan they grant, private lenders can lessen the risk in ways that banks cannot. Private lenders can take on more risk with different collateral than a traditional bank.
• Alternative Loan Structures and TermsPrivate lenders have quite some wiggle room when it comes to how they structure a loan for a borrower. They can match repayment schedules to match seasonal business income, unlike fixed, monthly repayments. They can negotiate the interest rates and terms with each loan financed. And if needed, they can allow interest-only loan repayment periods if cash is too much of a burden.

Private lenders are not bound by the same strict regulations that banks and credit unions are, which gives them this flexibility in their loan approval process. They have the ability to create terms and conditions that suit them, or suit the borrower, rather than fit criteria set out by the bank.

Their risk management is also different. It is often managed through the value of collateral, such as the property being built, rather than just a credit score of the borrower.

Private lenders also can focus on opportunity. If they see a great chance to help out a borrower, quickly, that will reap the rewards, they have that agility to act fast, create a loan that fits the borrower, and execute, faster than a bank can. They look for and encourage business growth as that powers their growth and profit as well.

The 5 Types of Commercial Loans

Hodgestone Finance has 5 different kinds of Commercial Loans for you to choose from. Which one would suit your needs better? You can speak with the team here to find out how we can help you finance your next big build.

Construction and Development Lending

This is a short-term financing option for building or renovating a property. Funds are released to you in stages as construction milestones are met rather than all at once in a lump sum.

This helps with cash flow and brings down the effective rate of interest over the life of the build.

This is a great loan type if there are delays in construction, or long periods of time between project updates. You only have the money you need at the time, and are not tempted to overspend on the project. However, the developer does need to stick to the term of the loan. If they go over the term they will be hit with a penalty interest rate.

Lease Doc Loan

This type of loan uses your existing lease on a commercial property to secure a loan. Assessment and repayments are based on the projected income from your rental property, based on the lease.

This type of loan is great for self-employed people who may have complex business structures with a lot of paperwork, or if you are unable to prove serviceability to the bank under normal assessment policies. If you own property and it generates an income, this loan is for you.

Low Doc Commercial Loan

Many self-employed business owners struggle with loans from the bank due to the amount of documentation you need. A low Doc loan requires very little paperwork to obtain approval. Alternative documents are provided to show income and cashflow, rather than a tax return or a payslip.

This loan helps with quick financial support for commercial projects, giving you working capital.

Due to the lower documentation requirements, costs can be higher than bank loans due to the higher risk to the lender, however often you are unable to get loans from the bank when you need a cash injection.

Commercial Property Loan

This is a standard loan type for commercial purposes, not for personal reasons such as buying a home. If you’re buying or building an investment property or office spaces, this solid finance option should be considered.

Private lenders have a lower barrier for entry for loans such as this. If you have credit issues or no financials to show off, a private lender can work with you to obtain a loan such as a commercial property loan.

Hodgestone Finance can link you with lenders for commercial property loans sydney, Melbourne, and Brisbane.

Unsecured Business Loans

This is a loan type that does not need physical assets as collateral, such as property or equipment. Instead, the business’s creditworthiness is considered, the cash flow and financial health. The interest rates are higher due to the increased risk to the lender, but this is often the best way to get quick access to funds without tying up assets of your business.

If you run a business that doesn’t have a high number of assets, this is the loan for you.

Do you have any further questions about the types of commercial loans Hodgestone Finance can arrange for you? We invite you to contact our team today to talk business. We want to see you and your business flourish, and if a financial step up is what you need, we’re here to help.