08/24/2010
Hard Money is an Alternative to Extend and Pretend
It’s fascinating how long it takes more mainstream publications to pick up on trends being analyzed on a daily basis by many financial blogs.
Maybe it’s the severe level of skepticism that mainstream media may have for nimble, cyber journalists, or maybe it’s more of the quickness that these folks get to the heart of problems, rather than skirting around them.
Whatever the case may be, the hard money bloggers, freelance finance analysts, and other lone sentinels knew very well that banks are holding onto deals, rewriting and restructuring them, hoping that their clients will turn business around to repay the bank.
As they continue to rewrite, they seize up capital that could be spent on servicing new loans to qualified borrowers.
True, these banks could just let their clients default on their loans and write off the loss, but this means the banks would take a massive hit in their capital base if they aren’t prepared ahead of time for such a loss. If they send their clients away to other banks capable of handing their near-delinquent borrowers, the borrowers may take their loyalty, and their deposits, with them.
The Wall Street Journal covers banks “Extend and Pretend” tactic as both a strategic move by banks to wait out the recession, but also as a foreshadowing of Japan’s own capital stalemate decades ago. They go into a bit of detail with an Umpqua deal that has been extended since 2007 or so.
Maybe all of this attention on this lose-lose scenario that conventional banks seem to be putting themselves in will bring to light the advantages of a hard money solution.
True, hard money rates are above market, but there is a lot of money available through hard money providers to pay off loan maturities without any big change in customer loyalty or deposits. Hard money lenders, like Fairway, are not interested in stealing your client. We really don’t have the function to do that so it’s seriously not possible.
We would like to see some more capital free itself up to encourage loan demand. Recovery means more business, more spending, and even more demand. That’s not a bad thing.
08/17/2010
New Forces Entering the Commercial Property Lending Market
If you’re feeling the squeeze caused by the current economic situation, you aren’t the only one. Other than our small-cap commercial mortgage segment of the market, other industries, such as bond trading and other securities, are feeling the effects of the slow recovery since 2007.
Nimble bond trading firms, like Cantor Fitzgerald, are making a move into commercial mortgage originations according to a blurb on the Wall Street Journal’s Plots & Ploys section.
While property prices start to stabilize, other firms outside of the commercial property lending segment are making their way into the market while traditional capital sources continue to hold credit close to the chest.
While this additional competition across all balance ranges may seem daunting, long-time competitors of small-cap commercial lending know that it takes more than a big wallet to provide funding to our various target markets.
There are relationships to be created and eyes to be attracted to such offerings. This doesn’t mean we can sit still. If a competitor can create a way to offer a more attractive pricing format while being able to offer extra values, and we do not move an inch to combat with better value offerings, we might start to see our trusted referral sources vanish right and left.
08/03/2010
A Mainstream Eye on Small-Cap Alternative Financing
While other news sources continue to hammer Congress and the Senate for its decision making regarding bigger banks and its imminent policy-making with small banks, it is refreshing to see a lens focusing on small businesses and their finance-seeking tribulations.
Sharon Bernstein of the L.A. Times covers small-cap alternative funding in her web column “When Money is Hard to Get, Small Businesses Turn to Hard Money.”
Bernstein introduces readers to hard money through a short video, followed by an article on small-cap hard money loans and the small businesses owners who seek them.
She covers an extreme example of a hard money loan, stating a high interest rate that causes a borrower to pay more than double their normal rent just to continue to lease the property that contains their business. One of her examples states costs including an interest reaching 36%, plus fees.
The most notable part of the article, despite its grim portrayal of small-cap hard money loan logistics, is its awareness that these loans are one of the only solutions available to small business owners, allowing them to pay mortgages, meet payroll, and have capital to produce more business.
They may take a hit to profits and operational funds, but it allows these borrowers to keep their businesses going through these hard times when they cannot find traditional funding through credit-frozen banks.
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