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The very essence of cash flow involves money on hand or easily accessible. Having funds readily available can be the difference between business success or failure. And to that point, it is worth noting that private lenders, those who specialize in bridge loans and other “hard money” instruments, can provide essential funds in a timely fashion. The access to financing can directly impact your chances of success in locating funding for your clients.
In today’s fast-paced environment, successful business transactions are based on speed. When you need money in days, not weeks, the resource pool tends to run dry. Traditional lenders take far too long to process loan applications. The paperwork and filing alone is enough to drive you off the deep end. Private lenders operate on a somewhat different basis; due diligence and thorough appraisal of collateral still takes place, but it happens faster and systematically, in a more streamlined fashion, resulting in a quick commitment and subsequent delivery of funds.
In the case of Kennedy Funding, we have been known to make a loan commitment in 24 hours and close in just five days. Don’t expect that kind of service and capability from a bank!
Additionally, the private lending industry applies more generous criteria to the loans they originate. While bridge loans can get your client past an immediate shortfall until conventional lenders enter the fray, our lending capacity actually represents a much wider and deeper potential. In addition to transactions based on land acquisition and development or real estate refinancing, loans from private lenders can be applied to a wide variety of commercial enterprises: radio and television stations, sports complexes, even amusement parks, to name just a few. The parameters are fluid, dependent most of all upon good business practices.
Some Scenarios
- An owner needs working capital for a troubled airline, but no bank considers aging jets as valuable collateral. A private lender comes through with funds to keep the airline operating.
- A buyer expresses interest in a group of half-vacant, underperforming buildings in five northeastern cities. When there are no takers in the public lending marketplace, he finds a willing hard money lender who can deliver a portion of the purchase price in record time.
- An entrepreneur seeks to build a golf course in the middle of a desolate desert area. Only a lender working with bridge loans can arrange for sufficient financing to begin the project.
- Developers are interested in transforming a dilapidated motel on the Vegas strip into a gleaming mixed-use showplace. Zoning restrictions scare off the banks, but the private lender lends the money and works with the zoning board to obtain a variance.
- A Mexican developer needs to borrow against raw land. Banks and other conventional lenders want liquid assets as collateral, but an American hard money lender generates a loan in the millions.
And when time is of the essence, no one can perform in the high-speed lane like a direct bridge loan lender.
To speed and flexibility, the direct private lender also adds creativity and versatility. A good bridge loan lender is creative in his financing and can work with third party financing, help clear a path through title issues, or negotiate loans for bankruptcies, foreclosures, workouts, and more. The dedication applied by a bridge loan lender to closing a deal is as strong as or stronger than those found throughout the financial industry.
With any loan, cost is also a crucial point. While the loan from a private lender may carry a higher rate, this may not literally be the case when all aspects are fully considered. The speed of the loan is a money-saving factor; waiting weeks or months for a traditional lender to come through — albeit at a lower rate — is usually costly. Then there are the ‘conditionals’ inherent in some lower rate loans: prepayment penalties, yield maintenance, equity participation, and certain marketing lures that may transform the initial lower rate into something considerably more expensive. At face value, a number rarely tells the whole story. Other factors can make the cost differential less significant. In the right circumstances, bridge loans can be competitive.
The need for speed is a good reason to approach private lenders for your clients, and the range of loan types, the professionalism, and the final costs make this an option worthy of serious consideration.
Gregg Wolfer is the co-CEO of Kennedy Funding, a direct private bridge loan lender based in Hackensack, New Jersey. The firm has been serving commercial borrowers since 1986, meeting the needs of a diverse client base that includes commercial real estate ventures and business enterprises in the U.S., and increasingly, international markets. Wolfer can be reached by calling 201-342-8500. The Web site is kennedyfunding.com.
Source: American Cash Flow Journal - September 2005

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