Mezzanine Financing Overview: What It Is, Pros and Cons, and Common Situations

If you're raising growth capital to expand your business, you may want to consider using mezzanine financing as part of your fund solution. Mezzanine financing is a form of debt that can be a great tool to fund specific initiatives like plant expansions or launching new product lines, as well as other major strategic initiatives…

If you're raising growth capital to expand your business, you may want to consider using mezzanine financing as part of your fund solution.

Mezzanine financing is a form of debt that can be a great tool to fund specific initiatives like plant expansions or launching new product lines, as well as other major strategic initiatives like buying out a business partner, making an acquisition, financing a shareholder dividend payment or completing a financial restructuring to reduce debt payments.

It is commonly used in combination with bank provided term loans, revolving lines of credit and equity financing, or it can be used as a substitute for bank debt and equity financing.

This type of capital is considered “junior” capital in terms of its payment priority to senior secured debt, but it is senior to the equity or common stock of the company. In a capital structure, it sits below the senior bank debt, but above the equity.

Pros:

  1. Mezzanine Financing Lenders are Cash Flow, Not Collateral Focused: These lenders usually lend based on a company's cash flow, not collateral (assets), so they will often lend money when banks will not if a company lacks tangible collateral, so long as the business has enough cash flow available to service the interest and principal payments.
  2. It's a Cheaper Financing Option than Raising Equity: Pricing is less expensive than raising equity from equity investors like family offices, venture capital firms or private equity firms – meaning owners give up less, if any, additional equity to fund their growth.
  3. Flexible, Non-Amortizing Capital: There are no immediate principal payments – it is usually interest only capital with a balloon payment due upon maturity, which allows the borrower to take the cash that would have gone to making principal payments and reinvest it back into the business.
  4. Long-Term Capital: It typically has a maturity of five years or more, so it's a long term financing option that will not need to be paid back in the short term – it's not usually used as a bridge loan.
  5. Current Owners Maintain Control: It does not require a change in ownership or control – existing owners and shareholders retention in control, a key difference between raising mezzanine financing and raising equity from a private equity firm.

Con's

  1. More Expensive than Bank Debt: Since junior capital is often unsecured and subordinated to senior loans provided by banks, and is inherently a riskier loan, it is more expensive than bank debt
  2. Warrants May be Included: For taking greater risk than most secured lenders, mezzanine lenders will often seek to participate in the success of those they lend money to and may include warrants that allow them to increase their return if a borrower fulfills very well

When to Use It

Common situations include:

  • Funding rapid organic growth or new growth initiatives
  • Financing new acquisitions
  • Buying out a business partner or shareholder
  • Generational transfers: source of capital allowing a family member to provide liquidity to the current business owner
  • Shareholder liquidity: financing a dividend payment to the shareholders
  • Funding new leveraged buyouts and management buyouts.

Great Capital Option for Asset-Light or Service Businesses

Since mezzanine lenders tendency is to lend against the cash flow of a business, not the collateral, mezzanine financing is a great solution for funding service business, like logistics companies, staffing firms and software companies, although it can also be a great solution for manufacturers or distributors, which tend to have a lot of assets.

What These Lenders Look For

While no single business funding option is suited for every situation, here are a few attributes cash flow lenders look for when evaluating new businesses:

  • Limited customer concentration
  • Consistent or growing cash flow profile
  • High free cash flow margins: strong gross margins, low capital expenditure requirements
  • Strong management team
  • Low business cyclicality that may result in volatile cash flows from year to year
  • Plenty of cash flow to support interest and principal payments
  • An enterprise value of the company well in excess of the debt level

Non-Bank Growth Capital Option

As bank lenders face increasing regulation on tangible collateral coverage requirements and leveraged lending limits, the use of alternative financing will likely increase, particularly in the middle market, filling the capital void for business owners seeking funds to grow.

Marketplace Lending: A Viable Option For Business Capital

In today's world of commercial finance, we are experiencing the New Normal in terms of business financing and how businesses acquire capital for growth and expansion. I seriously consider myself an advocate of traditional lending through the use of banks and commercial finance companies due to the lower cost of capital. But, due to the…

In today's world of commercial finance, we are experiencing the New Normal in terms of business financing and how businesses acquire capital for growth and expansion. I seriously consider myself an advocate of traditional lending through the use of banks and commercial finance companies due to the lower cost of capital. But, due to the way commerce is connected in today's world with the use of technology and the fluidity of markets because of increased accessibility provided by the Internet, the need for compatible sources of capital have arrived through the fintech (“financial technology”) boom . Enterprising entrepreneurs have recognized a sizeable opportunity in that a majority of small businesses lacking the access to capital needed to grow and sustain their businesses that provide jobs and resources to communities throughout the US. I would have laughed wholeheartedly a decade ago if approached with the business model most marketplace lending sources offer to small businesses now. However, I'm the one that's being laughed at by these entrepreneurial firms because through creative destruction mainly exacerbated by the Great Recession, they are filling a relevant need in the market both now and for the foreseeable future. I think it's safe to presume that we're not in Kansas anymore in terms of the traditional way of providing capital to the small business market via banks and commercial finance companies. I do not believe that this model will become obsoleste, but I do think that it will begin to decrease in scope as marketplace lending takes on more of a relevancy in the market because the way in which commerce is done today is not the same as it was done a decade ago.

Marketplace Lending as a Viable Lending Source for Firms

Business ROI has do with the strategies and decisions a business owner and his / her team make in order to optimize operating profits for the benefit of the firm and its stakeholders. These methods become more acute once business loans are obtained because there's a requirement to not only repay interest, but also the principal of the loan. The key component of this repayment risk for the business owner is the level and amount of interest charged. Traditional lending sources have been able to provide relatively low-cost business loans, but there's been a couple major downsides: (1) mostly offered to prime customers that have ideal personal and business credit and (2) abnormally longwriting and decision times even for prime prospects. What happens to those entrepreneurs that are categorized as mid prime prospects with semi-ideal personal and business credit profiles? Most of these prospective borrowers are left to find other ways and means of meeting business capital challenges primarily credit cards and consumer loans that are not ideal in terms of cost, loan term, and repayment structure. Financial technology firms have come along in today's market to provide business loans to viable firms that do not fit into a traditional financing sources “credit box”. In other words, there's flexibility in the structure of the loan product. One downside to marketplace lending is on the high cost of capital due to the Peer 2 Peer model which basically means there's no middleman between investors and borrowers. In lieu of the benefits that entrepreneurs receive from a marketplace lending source (flexible underwriting and decision structures, fast application and submission platforms, prompt turnaround and access of funds, etc.), the high cost of capital makes sense. In order to minimize the risk of default, business owners must assess the impact the loan will have on increasing and sustaining free cash flow for both repayment and operational growth. Thus, the business and technical risk of effectively using a marketplace loan is with the entrepreneur in that he / she must earn a higher ROI than the interest cost of the loan in addition to the other operating and capital expenses of the business. Welcome to the New Normal .

Top 2 Reasons For Business Loan Denials

For the previous five years, there has been an increase in commercial financing sources in the US. Specifically, there has been a proliferation in the alternative lending market that fills the need of business owners that do not have the credit (personal or business) or operating capacity to gain approval for traditional bank financing. Although…

For the previous five years, there has been an increase in commercial financing sources in the US. Specifically, there has been a proliferation in the alternative lending market that fills the need of business owners that do not have the credit (personal or business) or operating capacity to gain approval for traditional bank financing. Although helpful for the short-term, many of these alternative lending sources “trap” business owners into loan structures with high payoffs and abnormally high interest rates. These two factors often cause the firm more harm than anticipated by restricting and sometimes significantly reducing free cash flow. Traditional bank financing is still the best option for business owners due to the low-cost of the money and the flexibility for mitigating issues with repayment and payoff. In this article, we will focus on the Top 2 Reasons for Business Loan Denials in order to equip business owners with the information to produce and present business loan proposals that are concise, relevant, and factual.

(1) Unresolved Personal and Business Credit Profile (High Credit Risk)

Most business owners and individuals do not have a solid understanding of their credit profiles. Although banks have become more proprietary in their credit risk rating systems, the foundation still remains the credit report for both consumers and businesses. It's not only enough to know your credit profile, but you must also have valid explanations for any issues reported. Ideally, you want to resolve as much as possible these issues before submitting your business loan proposal.

Your personal and business credit profile also presents a pattern of repayment for the lender and represents a key component of approving the business loan. If the credit reports show a pattern of non repayment or not paying as agreed mostly, then the chances of a business loan denial are fairly high. One way to improve your repayment pattern is to either close unused or unnecessary credit lines or decrease existing credit amounts like credit cards or open lines of credit where applicable.

(2) No Business Plan Equals No Proof (High Management Risk)

Lenders like to see that business owners are organized and focused in their business, and a great way to dislose this is to present a solid business plan. This plan should highlight in the Executive Summary your business goals especially those that include the proposed loan. Many times loan proposals consist of a phone call or brief conversation with the lender with nothing in writing. Always provide the lender with a brief write-up either disclosing the loan opportunity or a business plan that includes an explanation of how the loan proceeds are utilized and repaid.

Also, describe the opportunity to obtain financing as a means to an end. In the past, I've experienced how entrepreneurs only offered plans demonstrating how and why the financing was needed without going into much disclosure of anything else. In order to improve your chances of receiving approval, give the banker a full picture of the financing's impact for both short and long-term.

How to Get a Business Loan

Money makes the business world go round. Obtaining a stable and flowing financial source is a major factor wherever you are planning on a new business or growing an existing one. There are a lot of new entrepreneurs who are daunted by the task of getting a loan and do not even know where to…

Money makes the business world go round. Obtaining a stable and flowing financial source is a major factor wherever you are planning on a new business or growing an existing one. There are a lot of new entrepreneurs who are daunted by the task of getting a loan and do not even know where to begin.
Here is a practical guide on how to prepare yourself and your business idea as you apply and successfully get a business loan.

1. Know the criteria that banks look for making small loans. Different banks and lending institutions may have different standards, but in general, when you are applying for a business loan, you should have been able to meet the following criteria so they can consider you:
• Your loan is for a sound business purpose. For example, the business must be eligible based on size, use of loan proceeds and the nature of the business (no lending, speculating, passive investment, pyramid sales, gambling, etc.)
• You and your partner (s) are of good character, have experience and good personal and / or business credit history
• You have the ability to pay back the loan. This could be in a form of a collateral or a personal equity investment in the business / skin in the game.

2. You have the basic documentation to submit. You will need the following documents. Different lenders may need more or less of these.
• Personal and business credit history
• Personal and business financial statements for existing and startup businesses and as well as a projected financial statements
• Strong, detailed business plan (including personal information such as bios, education, etc.)
• Cash flow projections for at least a year, and
• Personal Guaranties from all principal owners of the business

3. Research on the banks and lending institutions. Before actually approaching the lenders, learn about business loans, such as the banks' accounting systems, so you are able to discuss intelligently with the lending officers when the time comes.
• Choose your bank and lending institution carefully; one that would suit your business sector.
• Approach the ones you have worked with or are a customer of
• Take a look at community banks and Credit Unions
• Be thorough, bring everything they ask. Many loan applications are denied or face unnecessary hurdles because of incomplete applications.

4. Identify the size of the business loan that you want. There is a typical size for small business loans. There are some business loans that average £ 100,000 to £ 200,000. This highly depends on the business' financial needs and the business size, for example a start-up of a one-person company to hundreds of employees.

5. Have a good business plan . Getting a business loan for a new business may be more difficult since many banks want to fund growth. Many start-up businesses seek financing from family, friends and credit cards. However, you can get better chances of successfully getting a business loan if you have a strong business plan and the credit for the loan is reasonable.

Acquiring Secured Business Loans

Utilizing a secured business loan is a great way to ensure a lower interest rate, a longer repayment period, and the opportunity to build credit and forge a relationship between business and credit provider. A secured business loan, also called as collateralization arrangements, is a type of loan where the borrower obligations are some asset…

Utilizing a secured business loan is a great way to ensure a lower interest rate, a longer repayment period, and the opportunity to build credit and forge a relationship between business and credit provider.

A secured business loan, also called as collateralization arrangements, is a type of loan where the borrower obligations are some asset as collateral for the loan. These collateral can be anything of value such as car or property, which then becomes a secured debt owed to the creditor who gives the loan.

The collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan. The collateral serves as protection for a lender against a borrower's default-that is, it can be used to offset the loan to any borrower failing to pay the principal and interest under the terms of a loan obligation. Pawnbrokers would be an easy and common example of a business that may accept a wide range of items as collateral rather than accepting only cash.

In cases when the borrower may default on a secured loan, for example, due to insolvency, bankruptcy or other event, that borrower forfeits or gives up the property pledged as collateral, with the lender then becoming the owner of the property.

In a typical mortgage loan transaction, which is a type of secured business loan, the real estate being admitted with the help of the loan serves as collateral. When the buyer fails to pay the loan under the mortgage loan agreement, the ownership of the real estate is transferred to the bank. The bank uses the legal process of foreclosure to obtain real estate from a borrower who defaults on a mortgage loan obligation.

It is the lenders 'role to look at the business' history, current situation, its goals, and needs to be able to properly assess the best and reasonable financial assistance that the business needs.

Small businesses usually apply for a secured business loan because by extending the loan through securing the debt, the creditor is relieved of most of the financial risks involved because it allows the creditor to take the property in the event that the debt is not properly repaid. Another purpose for obtaining a secured business loan is because of the possibility that the borrowers may receive loans on more favorable terms than that available for unsecured debt, or to be extended credit under circumstances when credit under terms of unsecured debt would not be extended at all .

The lender may offer a secured business loan with attractive interest rates and repayment periods that is very favorable for the eligible business owner.

In general, a secured business loan may attract lower interest rates compared to the unsecured debt due to the added security for the lender; however, credit history, ability to repay, and expected returns for the lender are also factors affecting rates.

It is fairly easy to apply for a secured business loan. Many banks accept applications through online or personal transactions. Banks typically feel more comfortable when the borrower is currently a client of the bank, which means they are more likely to approve of the business loan.

With the secured business loan , it is more possible that ever for small and medium-sized businesses to take advantage of expansion opportunities, amass seasonal inventory, and engage in lucrative marketing initiatives.

3 Reasons Why Business Credit Is For You

Whether you're an entrepreneur or a resourceful investor, funding for your business or investment needs can be elusive. There is no shortage of methods that can be used for business funding: personal savings retirement savings personal credit cards lines of credit on personal assets private money or partners business / personal loans However, these methods…

Whether you're an entrepreneur or a resourceful investor, funding for your business or investment needs can be elusive.

There is no shortage of methods that can be used for business funding:

  • personal savings
  • retirement savings
  • personal credit cards
  • lines of credit on personal assets
  • private money or partners
  • business / personal loans

However, these methods may be limited in amount and / or require demanding qualifications. Even worse, some methods require use of YOUR money.

Personal capital should be the last resort of any entrepreneur or investor.

Here's a smarter option: business credit w / a personal guarantee . This is the route of least resistance.

3 Reasons Why You Should Choose Business Credit w / a Personal Guarantee:

1. Minimum Qualifications

  • Qualifying w / a personal guarantee is straight-forward. There are only 2 requirements: good personal credit and healthy projected income. Lenders want to know how well an applicant has managed their personal funds, and if the applicable is able to project substantial earnings from their business products or services.

2. Quick Transfer of Funds

  • Business credit reiterates the securing of credit cards under your business entity. Typically, funding w / a personal guarantee is swift and seamless. There are no long waits or strenuous application processes. Do you recall how quickly lending decisions came back after you applied for personal credit cards? Business credit decisions work the same. Some decisions are instant while others take a little over a week.

3. NO attachment to your personal credit file

  • As a business owner / investor it's best practice to keep your personal credit clean. A clean credit profile characterizes you as an attractive business partner and ideal lending candidate. The benefits of great credit are endless; Fortunately, business credit allows you to maintain great personal credit while still granting you access to the capital you need. Although, you are personally guaranteeing funds, business credit does not appear on your personal credit file unless you default. Making the minimum payments required is non-negotiable.

Requirements for business credit w / a personal guarantee are minimal; however, simply applying does not guarantee maximum funding. I propose consulting an expert or a professional service. They should be able to assist you with qualifying for and securing maximum funding.

Always evaluate the potential expenses that accompany your selected funding option prior to making decisions.

Raising capital does not need to be stressful or time-consuming.

Do not allow burdensome lending to slow you down.

3 Tips For Qualifying For a Business Loan

Since the economic recession in 2008, lending levels at banks have increased moderately. As the economy continues to grow and recover, entrepreneurs turn to banks and other lending sources to help in expanding their businesses to keep up with market demand. As a result of the Great Recession, most banks have restructured their business lending…

Since the economic recession in 2008, lending levels at banks have increased moderately. As the economy continues to grow and recover, entrepreneurs turn to banks and other lending sources to help in expanding their businesses to keep up with market demand. As a result of the Great Recession, most banks have restructured their business lending criteria to reflect increased scrutiny of business loan proposals and this makes it harder for business owners to qualify for a business loan. Although it's difficult to obtain a business loan compared to a decade ago, there are several key tips that can help increase the likelihood of obtaining a business loan.

Tip One: An Existing Banking Relationship

The first tip in strengthening your loan proposal is to have an existing banking relationship. You can exponentially increase the chances of obtaining a loan by applying with a bank that holds either personal or business checking accounts. Banks make money by charging more interest on loans than they pay out for deposits. By applying for a loan with a bank you have deposits with, they can make exceptions to their lending policy based on the longevity of relationship with you. The number one unspoken rule of commerce is people like to do business with people they know, like, and trust.

Tip Two: Present a Clear and Practical Business Loan Proposal

The second tip in qualifying for a loan is to present a clear and practical plan. Can you imagine the number of business loan requests the banker receives on a daily basis? Although most bankers will not admit this, but they LOVE to receive business loan proposals that are clear and practical. Ideally, the loan proposal should only cover the highlights of the business project in addition to key facts on the borrower. The purpose of the business loan proposal is to spark the banker's interest to learn more about the loan opportunity and possibly pursue a deal. A key document in the proposal is the Executive Summary because it explains in summary the purpose and intent of the business loan opportunity. This document is typically one page in length with key sections demonstrating the loan opportunity, profit potential of the project, repayment analysis, and collateral analysis.

Tip Three: Have a Compelling Presentation

In addition to having a clear and practical proposal, there's a need to have a qualifying presentation to aid in enticing the banker to approve the deal. Bankers are often frustrated with loan inquiries because they have no focus and lack organization. Bankers analyze over a hundred deals a week and most are sporadic phone calls or walk in clients that inquire loosely about loan opportunities with no firm basis of conversation. Clear and organized paperwork are key components in getting the banker's attention and gradually progressing through the loan underwriting and approval process.

As the economy continues to grow and recover from the Great Recession, banks are re-establishing proper business lending guidelines to help markets expand at an appropriate rate. Entrepreneurs continue to experience difficulties in obtaining business loans, but with these three tips, they can increase their chances of getting a loan to grow their business and increase their cash flow.

Cash Buyer – The Good and Bad for Equipment Financing

“I pay for everything in cash, I never finance anything” or “I've never had to take out a loan, I do not believe in it.” Every so often, I encounter this type of feedback from a business owner. The attitude usually goes along with a strong, hands-on work ethic for an owner which has built…

“I pay for everything in cash, I never finance anything” or “I've never had to take out a loan, I do not believe in it.” Every so often, I encounter this type of feedback from a business owner. The attitude usually goes along with a strong, hands-on work ethic for an owner which has built their business from the ground up. They have worked long hours, suffered through the ups and downs and sacrificed family time and vacations to make their business survive. Their belief is, if they can not pay for something with cash then they do not need it.

I respect the energy and devotion but I also take note that the strategy seems to apply to small, family owned businesses with a small number of employees which have remained flat in their growth and have stopped expanding years ago. Expansion and reaching new markets are not typically part of their business plan and they are happy with a fixed income often servicing the same clientele they have for years.

The downside of never financing anything is the limited amount of expansion which can occur. In essence, they can not grow beyond what is in their bank account at any moment in time. For example, a small business with $ 100,000 of capital desires to purchase a new $ 40,000 machine which will speed up production or bring them into a new market or simply replace an old machine; if they decide to pay cash that will leave them with $ 60,000 in cash reserves. If they encounter an emergency which requires $ 30,000 then that will leave them with little cash cushion in their account. They have also limited themselves in the case if another opportunity should surface at the same time they would not be able to take advantage of it like paying early for inventory to get a good discount.

The other negative of never borrowing is that your business will not have any established comparable credit so in the case when you do decide to finance anything, the likelihood of getting approved is marginal. A lender will not be able to assess your ability to pay back debt since you have never had any. Some business owners feel it should be viewed positively that you have never had to borrow but in the finance world it is not a positive. No credit history equals no loan.

The mantra in financing is 'it is easier to finance equipment than it is money' which is primarily true. Yes, you can get low cost capital from your bank if you have an established credit line but that line will have a limit. It is not a good move to use your credit line to finance an asset or equipment because that line should be used as either a last emergency resort or for short term borrowing. Finance rates are now in the 4-6% which can be stretched out to 5 years and sometimes longer. Many times, when expanding in a careful and planned manner, the finance payment will be less than the added revenue of your new equipment. This is true of energy and cost efficient industrial machines, solar systems and LED lighting.

Financing equipment for your business offers you the opportunity to expand, create more profit and reach new markets and clients. For those that want to know the benefits of never financing anything it is this; you will never owe anyone anything, no monthly payments, no interest and no chance of borrowing more than you can pay back but in that perceived safety there is also some risk and missed opportunity.

Uber, the Dragon and the Banking Sector

Banks lend money. Taxis transport people from one pace to another. You may not think there is much similarity between the two. But both are based on a simple enough promise. Both have managed to build an uncontested and reliable status quo. Both are also facing a challenge to their dominance and both are resisting…

Banks lend money. Taxis transport people from one pace to another. You may not think there is much similarity between the two. But both are based on a simple enough promise. Both have managed to build an uncontested and reliable status quo. Both are also facing a challenge to their dominance and both are resisting or (at best) slowly adapting to changing times.

As Albert Einstein said, 'Everything should be made as simple as possible, but not simpler.' But what is 21st century simple? In the world of people transport Uber has come up with an answer. It has tapped into the modern world and understood the psyche of the modern person and in the process launched the status quo. But what about the banking sector and specifically bank lending? Over several hundred years of trade surely the banks have had time to develop a product that is as simple as can be? But is it 21st century simple and if not where does this leave the banking sector and traditional lending?

Everyone is familiar with the likes of Barclays, HSBC, Lloyds or Santander and this is because they are banking giants- a veritable banking cartel – who by the size of their market share dominate the lending landscape. They do not have to innovate or have to be over accommodating or flexible. They have a set criteria and fixed requirements – boxes which their clients have to tick before they consider lending.

By virtue of their size they are volume business based on vanilla deal types which are underpinned by a methodological and transactional approach which has served them well for decades. The result of this approach is that they manage their risk well and so can lend at very attractive rates.

But the risks are changing as the 21st century business world developments. It is a pace of change that traditional bank risk appetite is not necessarily keeping up with. Sometimes all the risk modeling and financial sensitivity analysis in the world can not answer the question; do I buy into this person, their business and their plan?

The question do I buy into this person, their business and their plan is more relevant than ever.

We are now entering the world of the dragon and it is in their den where business now finds their finance. In the recent past this was a niche world inaccessible to the majority of businesses. But it is now evolving and entering the mainstream under the guise of peer to peer lending.

With low interest rates and lower yields many private investors and hedge funds are beginning to pour billions into peer to peer and independent lenders. You and I can sit in that comfy leather chair to see the metaphoric whites of a person's eyes and make a gut decision on them and so decide the fate of their dream – it is a power usually reserved for the super-rich … or TV personalities.

But the attraction of being an arm chair dragon, the potential of higher returns for the investor and faster, more convenient loans for borrowers means that this sector is set to grow and in the process begin the shape the lending landscape.

But let us bring some context to things. In the current market, peer-to-peer lending to SMEs still accounts for less than 1% of total lending. However the number of new entrants into the market is increasing and the amount of money lent is growing rapidly. It has taken the imagination of all wannabe dragons. But more importantly it has also attracted the attention of large funds with huge amounts of money to invest – enough money to ensure that the investment is not speculative and failure is not an option.

Peer to peer and Uber are here to stay – get on board or ride the last old black cab back to the last century.

Commercial Real Estate Lending Trends in 2015 With Comparison to California

In March 2015, the National Association of Realtors (NAR) invited a random sample of 49,485 realtors who worked in commercial real estate to fill out an online survey. A total of 791 responses were received for an overall response rate of 1.6 percent. The survey queried realtors' opinion of how they found their lending environment…

In March 2015, the National Association of Realtors (NAR) invited a random sample of 49,485 realtors who worked in commercial real estate to fill out an online survey. A total of 791 responses were received for an overall response rate of 1.6 percent. The survey queried realtors' opinion of how they found their lending environment to be during that past year. Living and working in California, I find it interesting and informative to compare general results to survey opinions in our state. I think you will find it instructive, too. Without further ado, here are the opinions of the brokers and private lenders as stated state by state:

States that provided difficult lending situations

The National Association of Realtors (NAR) found that 58% of investors preferred approaching banks but not all banks were ready to lend. Of those that did, these traditional lending institutions aggravated the situation with clumsy procedures, irksome schedules and terms, and long drawn out processes. Few banks, too, executed themselves to please their clients or to make the situation more comfortable for them.

Said a private lender in New York

Banks have been very aggressive to get deals financed.

Such a situation can be expected from a city like New York where banks have to be on their feet regarding delays and have had to cut back due to bad loans. Beside, New York is known for its aggressive and abrasive environment. Deficiency of empathy to clients is one of its sore points.

More unexpected has been the fact that genteel places such as Louisiana are reporting the same difficulties.

Said a local agent:

Banks are doing well but they make it hard to do business, and is hard to move forward in an environment like this. – Louisiana

And in North Carolina:

The money is cheap, but still very difficult to obtain. – North Carolina

Similarly, the banks place monopoly on investors and act like nefarious scrooges. Other investors had this to say:

The rules put in place for the big banks are handcuffing the regional and community banks. – North Carolina

Just refinanced 3 properties from $ 150,000 to $ 1,000,000. Low loan to value deals. – Colorado

Secondary market commercial financing terms are either so burdensome that it's not worth the process, or terms so tough that purchasers do not see the value in financing and just pay cash for smaller commercial deals. – New Mexico

States who found the lending environment good

If you want to invest, you may wish to consider moving to one of these areas. There is less opportunity than in California. There may be a flatter market in place with distressed inventory and possibly less promise, but the banks are more eager to help investors.

There is plenty of money available for qualified buyers of commercial properties. – Texas

Financing has not been a problem with reasonable transactions. Massachusetts

States that provide a positive environment for commercial private lenders to work in

Lending conditions of banks in the majority of the states in 2015 have been frustrating for consumers which makes it an ideal situation for private money lenders such as hard money lenders who thrive on disappointed investors. Hard money lenders step in where banks fail with promises of convenience, solid attention, client comfort, fast hand-overs (think of receiving a loan in the same week as compared to a 60 days plus of the banks!) And far less paperwork. All you've have to do is sign your name on a few forms and fill out details regarding the value of your property and your work, experience, and / or credit background. Nothing major and far smoother than the banks. The underwriting, in short, is lovely. Even the loan-to-value structures in some places (particularly in California) has picked up with commercial private lenders now offering higher to full percentages.

The downside is the high interest rates and balloon payments (think of payments that are double as much as banks). On the other hand, shunned want to-be-investors may have no alternative.

Agents in Pennsylvania and Carolina lauded the private lending market:

Generally, entrepreneurs have vision and are way ahead of the cultural curve while banks operate seemly in a closed cave and compensate for their lack of skill with aggressive rates and terms, or an unrealistic client process. – Pennsylvania

Carolina was more severe. One investor explained that he preferred the alternate sector because:

I think the banks have let down the entire country. They are mindless lemmings and have abandoned their role in the greatest economy. – North Carolina

These agents in Georgia, Carolina and Illinois, for instance, who were let down by their banks may have no choice but to seek out private commercial lenders especially if they want to invest.

Illinois: Commercial funding is a problem. I have a great property on the market for 1 year and no takers.

Another commented that banks are

Slow in processing loans. Abnormal waiting time to be funded. – Illinois

North Carolina: Commercial land loans almost non-existent.

And Georgia. (He sounds really caustic):

When lenders begin lending again, the demand backed up by buyers is very high and the economy will perk along. No money – no recovery.

Agents in Wisconsin found a similar situation:

Banks have gotten much more aggressive for owner occupied transactions.

Seems as though, some private investors would find a ready market in Kentucky:

Generally speaking only local banks are lending commercially. It takes twice as long to get a loan and the underwriting requirements are too restrictive. – Kentucky

Finally, it seems as though in Ohio, small businesses have no choice but to approach hard money lenders:

Big banks are not making loans to small companies anymore … only to big businesses.

Flip to the private commercial lending environment in California …

The National Association of Realtors discovered that private lenders run a booming lending business in California. More brokers have joined and more are investing in the field. Private lenders in California have profited from a growing interest in investing that came upon the shortcomings of the recession. 2015 was a good year with private lenders mainly serving entrepreneurs and small business owners. As mentioned, these were ones who were turned away from the banks.

During the last year, private lenders also boosted the attractiveness of their field by eliminating one of their problems: the low loan-to-value (LTV) rate. Originally, lenders only doled out LTV rates that ranged from 50-60% which is hugely low for the value of private property. A growing number of agents felt comfortable enough to raise their LTV rates to 80%. Some meet full property percentages. This and tightening government regulations to protect borrowers (particularly residential borrowers) has made investors more willing to see private commercial lenders as an attractive alternative.

On the flip side, growing prices and the bonus high interest rates of lenders resolved in a rising percentage of defaults. Inexperienced and new agents had more of these collapsed repayments than others. Defaults are predicted to rise the coming year due due to an increase In interest rates. Government regulations, too, have meddled in the situation with irksome and complicated rules that force lenders to protract time to acquire loans thus making an original attractive private lending situation less so.

Nonetheless, these years seem to be a good time to enter the private commercial lending market in California, particularly if you know how to do it.

Here are some of the reports as published by NAR:

Most people say they will talk to their bank for commercial loans. California

True. But then, a majority is turned away. This is particularly due to the fact that:

Excessive regulations and self-imposed bank red tape have made commercial borrowing difficult for legitimate customers. California

This causes many investors to turn to hard money lenders .

I think there's enough money available, the problem is not the Banks; it's the borrower's inability to qualify for financing. California

And said another private lender who world in California:

Many, many obstacles to getting a loan. Even experienced loan brokers are not sure of their deals until the very end of the process. California

Which is why hard money lending in California is thriving …