Here’s How a Private Equity Loan Can Help Your Buyer Get the Funding They Need

Many brokerages prefer to focus their time and effort on getting borrowers approved for “A” paper loans from traditional banks and lending institutions.

But there are times when even a borrower that seems to have met all the requirements can run into trouble — necessitating the option of a private equity loan.

When does it make sense for you to suggest that your borrower consider a private equity loan?

There are Issues with the Borrower’s Credit

Credit issues, including a poor credit score or past-due and delinquent mortgage payments are unacceptable to traditional banks and lenders, and can cause a borrower to be denied a mortgage loan.

There are Issues with the Borrower’s Income Verification

The borrower could have limited income documentation or none at all, which immediately raises a red flag in the eyes of the bank and other “A” paper lending institutions.

Oftentimes, individuals in service industries, such as food service, seasonal industries, or other industries like freelancers have difficulty documenting their income because of tips or slower seasons where less income is made. These can all cause banks to deny the application even if overall, there is enough income to be approved.

There are Issues with the Condition of the Property

Banks and other lenders will wholeheartedly refuse to loan money on a fixer-upper, or a home in need of major repair. The allure of “fix-and-flip”-type TV shows can lead anyone to believe that with just a little elbow grease, they can turn a run-down home or property into a lucrative investment, but banks aren’t buying any of it.

If they see an applications for a loan to buy a fix-and-flip style home, they’ll likely turn it down, even if the buyer has enough income for approval.

There are other types of property that banks won’t touch either, including churches, gas stations, auto repair facilities and vacant land, to name a few. Like with fix-and-flip properties, alternative lending may be able to help the borrower get the financing they need for these types of properties.

The Borrower Needs Money Urgently

In some extremely hot property markets, homes and properties rarely come up for sale, but if they do, they’re snapped up in an instant. Obviously, preference is given to buyers who have cash-in-hand, and let’s be honest, this isn’t always possible when dealing with banks and other traditional lenders.

Even in the best of situations, they tend to shuffle their feet and let the loan application process drag on, which means that prized property can be snatched right out from under the prospective buyer’s eyes!

A private equity loan can help them avoid that by giving them the cash they need at a reasonable interest rate.

Getting Started with a Private Equity Loan

You should make your borrower aware that in the case of a private equity loan, interest rates can be higher than traditional loans, but the trade-off is that they have their money sooner and with less rigid requirements.

Either way, the borrower should have a plan in place to pay back the loan. They may even be able to get a private equity loan to buy the property, then refinance into a traditional loan and use that money to pay off the first loan. Either way, you would receive a commission from both the referral for the private equity loan as well as the institutional loan — a win-win for mortgage brokers.

What’s more, private equity loans are typically approved much sooner than traditional loans. Pre-approval can be done in as little as five minutes, while official approval can take around a week or two.  There are times when the process can take longer, but that generally only happens if the buyer has not disclosed something and more time is needed to verify or otherwise deal with the issue.

Call Us Today and Learn More about the Benefits of Private Equity Lending

If you’d like to learn more about how offering private equity loans to your borrowers can help them get started in real estate investment, buy a fix-or-flip home or even get their first mortgage, we’d be delighted to speak with you. Simply give us a call and our private equity lending professionals will work with you and your borrower to understand their unique situation and determine the best course of action for their specific needs.

Private equity loan referrals can be a great way to help borrowers in need while helping you to create a brokerage that helps close more deals with more clients. We’re more than happy to answer all of your questions and walk you through the process, so give us a call today and let’s discuss more about working together!