What alternatives do you have when your commercial real estate loan is rejected by your bank or other lender? Your property has an appraised value and you have equity that you would like to collect, or you are trying to buy a new property and cannot get a loan from a lender to purchase money. Perhaps you are a real estate developer who is used to getting your loans approved due to a successful track record and can’t even get a meeting right now. Or maybe you’ve been approved for a loan, but can’t bear the fees or terms.

We’ve all heard more than we want to know about the liquidity and credit crunch, but what may not be so obvious is that there is a lot of money available for the right deal. Change creates new opportunities, and when traditional financial institutions are unable or unwilling to take more risks, there are many lenders and investors who will. It’s about taking another look at your existing assets, both real estate and liquid or paper assets, and making the best option available. The following is a simple list of ways to create alternative financing possibilities:

• 1 What institutions have rejected you and why? Knowing what hasn’t worked can point you in the right direction, so be sure to ask as many questions as possible when you’re turned down, including asking if they can direct you to a lender who can make your loan. While most of the following criteria generally play some role in qualifying for a loan, some lenders focus more on CLTV or LTV (combined loan-to-value or loan-to-value), some on DSCR (loan service coverage ratio). debt), some on the IRR (internal rate of return), some on the capitalization rate, some on credit, and some on the overall financial strength of the borrower. Knowing this is often the key to reaching the right lender.
• 2 If your loan was approved but you didn’t like the rates and terms, see how much room there is for a friendly negotiation and don’t delay. It is vital to stay on good terms with anyone who is willing to lend money these days; don’t burn a bridge if you can help it. Personally, I know many “shocked” developers who were hoping to get back to the lender who approved it several weeks or even months later (after comparing prices and they couldn’t find anything better, or were rejected by everyone else), only to be rejected . this time because the lender begins to wonder if there is something wrong with the project that they did not see the first time, or because the conditions have changed.
• 3 You may need to deposit more cash if you are making a purchase. Risk-averse lenders want a much more attractive LTV value loan before stepping in with the rest of their purchase proceeds. If you are refinancing, remember that a risk-averse lender is very wary of appreciated value and would rather see more of their own cash on the property.
• 4 If you don’t have the extra cash, take stock of your other assets. There are lenders who make loans against many different types of assets, such as merchant accounts, future cash flow, marketable securities, other financial instruments, cross-collateralized real estate, insurance settlements, and factoring accounts receivable. For certain types of projects, such as energy and green projects, as well as films, there are tax credits, carbon credits, and various types of bonds and associated participation sponsored by municipalities and states.
• 5 When considering a purchase, or perhaps if you are designing a new project to build, you may want to see what types of properties lenders are looking to finance before bidding. Even if you have talent, a niche, tons of experience, or a crystal ball that works, why swim against the current when you can go with the flow?
• 6 If you’ve been through all your usual banking relationships, you may want to consider working with a licensed broker. Even if you pay for the broker’s services, remember that a broker keeps up with far more lenders and investors than you generally could, and they can help you orient yourself to those whose guidelines suit you.
• 7 One resource that can work well (if done with the right institution) is a leased financial instrument, such as an SBLC or CD. Some larger real estate transactions can be closed with this type of credit enhancement or with funds placed in escrow when other funds are available at closing. Sometimes it is also possible to execute a usable line of credit against a certain type of leased instrument when financial institutions at both ends agree to the terms. Be very careful to get approval from the bank providing the line of credit before making any payments.

It is important to be creative and realistic when it comes to obtaining a commercial real estate loan, and to be willing to embrace the changing financial terrain while being open to new suggestions. Seek solid professional advice to improve your own personal and professional goals. Sometimes when you look at things differently, the solutions to the problem become much clearer and perhaps better than the plan you had at the beginning.

Copyright by Colleen Zaruba 2009