Most investors know that the banks’ lending practices have gotten stricter and more conservative, leading to fewer commercial mortgages to go around. But another factor that has made it more difficult to obtain funding for commercial real estate is the consolidation of small banks into larger national and regional ones that came about during the 2008 recession. This consolidation has removed the local factor from the institutional underwriting process, leaving only the more standardized, corporate underwriting model, which does not like approving loans that do not fit the regulations perfectly and check all the boxes.

The top three reasons a bank is unable to fund a commercial loan:

1. Timing: Commercial mortgages take at least 90 days to fund. Oftentimes, a borrower needs the funding on a tighter timeframe than this allows.
2. Income: Getting approved for a loan if you’re not a salaried employee with a W2 can be difficult. Banks tend to be much more cautious with borrowers who are small business owners or self-employed and have more complicated financial situations.
3. Credit: Many borrowers still have black marks on their credit from the last recession even though their current financial situation is completely different.

Three ways to increase your odds of getting funded:

1. Be organized. Put together a presentation and provide all the necessary information and financial documents upfront.
2. Make a plan. Clearly state your objective and what you hope to accomplish with the funds. Provide the numbers to support your vision.
3. Find a lender who is the right fit. Most lenders have a type of loan or geographic area that they specialize in. Look for one who specializes in the type and area that works for your project.

And, finally, keep in mind that when banks say no, hard money and private capital lenders may still say yes. Private lenders can fund loans quickly (in a couple of weeks rather than 90 days) and are more willing to deal with complicated financial situations and borrower with less than perfect credit histories. The same tips for getting funded still apply. When you meet with a private lender, be prepared to explain your vision for the project and what you plan to do with the funds you’re requesting. Private lenders are also more willing to think outside the box and structure loans in creative ways to fit the needs of your project, rather than presenting a one-size-fits-all solution like a bank lender does.

If you have a project in need of private capital funding, contact Montegra at 303-377-4181 or loans@montegra.com for more information about our loan programs.