Tips to Fast Closes!

Scenario: You have a partner in a commercial real estate project who suddenly wants out. He/she offers you an incentive to close quickly.

Scenario: You found a great property under market value. The seller accepted your offer and you need a quick close.

Scenario: You have a huge tax bill that has just caught up to you. You need money to pay taxes before they government puts a lien on your property.

Rapid Funding

In all of these scenarios it’s possible to get rapid funding and it happens frequently. There are private lenders who can close quickly in these situations — if the deal is right for them.

The type of lenders who are most able to close quickly are generally referred to as “hard money lenders.” That doesn’t mean their money is hard to get; quite the opposite, however, some borrowers may think their terms are “hard to swallow.” There’s always an upside and downside to any type of commercial finance. The quicker you want to close, the more expensive the money will be, up front; but there is usually an easy exit from this type of financing once your situation is resolved and your property is stabilized.

Be Prepared!

The KEY to getting a quick-close lender to look at your deal, make a rapid decision, and close quickly is simple – be super prepared! 

When closing quickly, commercial real estate lenders are lending against the value of the property most heavily and may not consider the cash flow at all. In fact, most of these scenarios involve a situation where there is little or no cash flow currently.

What to Expect

What the lender looks for is lots of equity; so for the borrower, the loan is going to be low LTV. Depending on the type of property and type of situation, you can expect the lender to offer 45% LTV to maybe 65% LTV. This leaves lots of room in the deal for the lender to liquidate the property if they have to take it back from you.

Secondly, expect to pay for the fast close in terms of higher interest rate and lender points. There will also be due diligence fees, including processing, appraisal and inspection that will have to be paid in advance of closing.

What to Have Ready

 So being prepared means:

1. Gather all the information you need to complete your loan application quickly. A complete summary or loan application is essential.

2. Have all the supporting documentation gathered, prepared, digitized, clearly labeled and ready to submit.

3. Have a recent appraisal or broker’s price opinion. Recent is within the last 6 months -preferably within the last 30 days.

4. Have your own credit report, personal financial statement and P&L from any other businesses you won. Make sure these are current and ready to go. Write letters of explanation for any oddities.

5. Have a full package on the property, including photos, narrative, past financial performance and projected plans (pro forma and executive summary.)

6. Put your own request letter together briefly describing the situation, the loan request, and the exit strategy.  Be clear on your numbers and your timeframe.

7.  Be ready to comply with the broker’s and lender’s paperwork requirements, including non-disclosures, letters of intent, etc. Don’t get into a legal quibble and demand wording changes.

Scenarios Resolved

To address the scenarios at the beginning of this article:

  1. Partner wants out — SOFIA Capital Ventures works with a couple of lenders who will loan against your ownership shares, meaning they can make a quick loan without a full refinance. Alternatively, if there’s enough room in the deal, several lenders would offer a second or mezzanine loan, again without the need to refinance the first.
  2. Quick close on purchase — SCV has lenders who can close in as litle as 7-10 days, for the right deal. We cannot emphasize too much the importance of having a full package ready to go. If the property is underperforming, the key will be to have liquidity from other sources to make sure the monthly payment is covered.
  3. Big Tax Bill — SCV has a number of lenders who actually specialize in this type of scenario. For businesses who also have expensive merchant advances or other types of cash-flow financing, a rapid refinance against the property or other assets may be in order. For real estate investors short of cash, a bridge loan, mezz loan, or equity loan may be the way to go.

For all your financing needs, CONTACT SOFIA CAPITAL VENTURES for a quick, no-cost evaluation of your scenario.

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