Are you trying to acquire a problem property with promising potential value after improvements or stabilization? Is your property located in a secondary or tertiary market? Are you in need of a non-recourse loan? Are there problems with your credit history that you’d like to explain to your lender? Do you need additional funds to cover significant rehabilitations to a distressed property? Is your purchase price lower than the appraised value of the property? All of these situations are the kinds of hiccups that could derail a conventional commercial mortgage, but that a private capital or hard money lender is used to dealing with. Smart borrowers learn to recognize when a project might require alternative lending sources, and they take the time to conduct due diligence to find the right private lender to fit each deal.

Location, property type, and intended use of the loan funds are important factors to consider in selecting the right lender for your project; however, because private lenders often specialize or service a particular niche of the market, it is also important to understand their origination, underwriting and decision-making processes. To that end, here are some of the important questions for you, as a borrower, to ask your private capital lender before you decide whether to request a loan from them:

1. Do you have sole discretion over how funds are loaned out or do the capital investors have to approve any decisions with a final vote?
2. What information is required for the underwriting process and how long will that process take?
3. Who ultimately decides whether or not to approve the loan? Am I able to speak directly with that decision-maker?
4. Which law firm do you use to document and close your private capital loans?
5. Will the loan be managed and serviced by you after the closing or will it be securitized or sold later on?
6. Are you willing to provide references or examples of similar transactions that you have approved and financed?

A reputable lender will have no problems answering these types of questions. If you detect any reluctance or hesitancy in a lender, then you should dig deeper or walk away because it could be a red flag that the lender is not being completely upfront with you. These questions can also help you to identify brokers who are masquerading as lenders but who are not actually in control of the funds you’re requesting from them.

If you have questions about Montegra’s private capital loan programs or underwriting process, contact us today at 303-377-4181.