What do you do when your short-term, small-balance bridge loan is maturing but you are not yet in a position to refinance with a long-term bank mortgage or to sell the property? It may be time to consider a longer-term, nonbank financing solution, such as can be provided by a private lender, whose interest rates may fall in between those of the bank lenders and the more straight-forward hard money lenders.

Commercial real estate financing is often portrayed as a perfect binary: bank lender versus hard money lender. However, in reality, there is a lending spectrum that ranges from bank lenders to hard money lenders and includes agency lenders, life companies, online lenders, other nonbank organizations, and private capital lenders. Bank lenders have the most restrictions as they are subject to the most government oversight, but this allows them to offer the lowest interest rates and the longest-term loans. Hard money lenders will underwrite much higher-risk loans, but the cost is in the interest rate, which is typically in the mid-teens, and the terms are generally six months to one year. So where do the rest fall? Agencies and life companies offer rates and terms that are similar to those offered by bank lenders, but their requirements tend to mirror them as well. Private capital lenders and other nonbank organizations tend to be the wild cards of the bunch. Often lumped together with hard money lenders because they employ a similar underwriting approach, these lenders are willing to craft loans to fit projects (potentially providing loans that can last up to two years with the possibility of an extension) and offer interest rates that generally fall between 8 and 12 percent.

So, if you have a hard money bridge loan that needs to be paid off for a property that is improving but still can’t quite meet a bank lender’s requirements, then shopping around for a less expensive private loan to pay off the bridge loan can be a good alternative to re-upping the original hard money loan (if that is even an option). Nonbank and private capital lenders sometimes have programs that can provide borrowers with even more options, such as programs that allow a borrower with multiple properties to consolidate their investments or take cash out and put it toward the property that needs more capital right now.

The savvy commercial real estate investor recognizes that different financing may be needed in different investment situations and chooses the financing option and lender who best fits the needs of the project instead of trying to fit every project into the same lending box.

If you have questions about how Montegra’s private capital loan programs might work for your investment projects, contact us at 303-377-4181 or email loans@montegra.com.