Real Estate - Interest Reserves for Construction Loans

According to The Wall Street Journal (subscription required), bank auditors are looking closely at whether or not banks are using interest reserves to hide troubled real estate construction loans.

Interest reserves represent money set aside by the bank from loan proceeds to cover the interest expense to be incurred over the life of the loan. In effect, the bank could be paying themselves interest even when a loan is not performing and should be considered delinquent.

"As an indication of regulators' concerns about construction lending, the FDIC in recent months has hit some banks with cease-and-desist orders requiring, among other things, that they overhaul how they use interest reserves. Analysts have warned that some 150 small banks could fail in the next few years because of their big bets on construction loans."

Use of interest reserves has been a long standing practice. However, with bank losses growing daily from bad real estate construction loans, The Wall Street Journal notes some banks may alter or discontinue this practice.

If interest reserves are a critical element of your real estate construction loan, you'll find some private money lenders are willing to provide interest reserves. Of course, the cost of this money will be significantly higher than bank financing.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : commercial real estate , hard money loans , construction loans

Recourse Real Estate Loans Back in Fashion

According to today's Wall Street Journal (subscription required), lenders are once again asking for personal guarantees on commercial real estate loans.

With a disappearance of the commercial mortgage-backed securities (CMBS) markets, bank lenders are returning to the recourse "loan and hold" model.

Underwriting is more thorough, advance rates are down, pricing is up and terms are tougher.

No personal guarantee and you're not likely to get the loan.

If the bank told you no and you need help finding the right hard money lender for a commercial real estate loan greater than $1 million, "Matchmaking for Business Loans" and give me a call!

Tags : commercial real estate , hard money loans

Atradius - Top Four Impacts of Credit Crunch

More than 2,500 business executives in 14 countries have shared their perspectives on the global credit crisis with The Atradius Group which provides trade credit insurance, surety and collections services worldwide. Ninety percent of U.S. respondents forecast further tightening of credit.

Here are the top four negative impacts on performance anticipated in the coming year as a result of the credit crunch.

1. Increase in payment defaults (69%)
2. Increase in the cost of capital (67%)
3. Inability to raise outside capital (63%); and
4. Slow-to-no sales growth (62%)

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : Atradius , credit crunch , cost of capital

Pessimistic CPAs

As reported in SMB Finance, senior level executive CPAs are pessimistic about the economy and experiencing problems related to the credit crunch.

The quarterly survey, by the American Institute of CPAs and the University of North Carolina's Kenan-Flagler Business School, found that 57 percent of the more than 1,400 senior-level executive CPAs polled said they were pessimistic or very pessimistic about the economic outlook for the U.S. over the next 12 months.

Asked about the impact of the credit crisis, 45 percent said their organization was not experiencing any changes, while 20 percent cited problems with customer collections. Eighteen percent indicated they were experiencing higher credit costs and 14 percent said that previous sources of financing were no longer available.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : credit crunch , business loans , SMB Finance

Leasing Rates Increase

My small ticket leasing alliance partner just told me that interest rates on leasing transactions are being increased by a major bank leasing company. This funding source finds its business through a network of independent finance brokers and lessors.

Why is this lessor raising rates for "application only" and small commercial leasing deals?

First, the lessor's cost of borrowing has increased.

Second, delinquencies and defaults have also increased - higher risk goes hand-in-hand with higher rates.

Per my alliance partner, while this source was the first to increase rates, the news on the street is other lessors will soon follow.

Need help finding the right lease financing source or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : Equipment leasing , leasing , app only , equipment finance

SBA - Experience Wanted

No, I'm not referring to the open position at the SBA now that Small Business Administration chief Steven Preston has been nominated to lead HUD.

These days, SBA lenders increasingly require a prospective borrower to have relevant experience before approving a business acquisition loan for either a franchise or a non-franchised operation according to New Jersey Biz.

In a pre-screen I just completed, each of the SBA lenders I contacted expressed concern over the prospective buyer's lack of industry related experience as part of their respective decisions to decline interest in the acquisition loan.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : SBA , 7a loan , 504 loan , Steven Preston , SBA loan

Inc.com - Why are SBA Loans Drying Up?

The newspapers have recently been filled with stories of how SBA loan activity has declined.

Why? The answers are many according to Robb Mandelbaum of Inc.com who wrote "Why Are SBA Loans Drying Up?". Tighter underwriting standards, higher borrower fees, higher lender audit fees and fear of the SBA not honoring the guarantees.

Here's what I have experienced and heard directly from lenders...

Home equity has dried up and most prospective borrowers aren't offering any collateral. It is becoming rare to find a lender who uses the SBA guarantee to shore up a lack of secondary collateral. More and more it seems the lenders are underwriting to conventional loan standards and taking the guarantee as icing on the cake.

Given that much of the decline in loan activity is the SBA Express product which only offers a 50% guarantee from the SBA, this makes a lot of sense. A bank is more likely take a 50% guarantee (rather than the 7a's normal 75% guarantee) when there's plenty of outside collateral in the form of real estate.

No real estate - fuggedaboudit!

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : Inc. Magazine , SBA loans