By its very nature, this is a short term lending instrument that is typically only for a period of one year but can be arranged for two or three years in some cases.
When financing commercial property, a private commercial mortgage can be an effective financing approach for at least three different scenarios that we’ll now go over.
The first scenario is when you are trying to purchase a property and there isn’t enough time to get a conventional mortgage in place even though you would likely be able to qualify for bank financing. Sometimes its not worth the risk of losing the process through the borrowing process dragging on and its better to get financing in place that can close the deal than lose out on it all together. As soon as the property is secured, you can then start working through a conventional mortgage solution to pay out the private mortgage.
The second scenario is when the business requires capital quickly for a non real estate related transaction. This could be to consolidate debt or provide incremental working capital for operations to grow sales or cover losses from a business slow down. Regardless of the reason, a private mortgage can be a great solution as the process for getting a mortgage assessed, approved, and funded is typically significantly shorter than a bank or institutional lender. And if the business is in some type of financial difficulty or economic downside, a private lender may be the only real option.
The third scenario has to do with short term cash flow. There are times when a business wants to acquire a property and its available cash flow does not quite need the debt servicing requirements of a conventional lender. This can be in situations of start up where the business is still new and cash flows are being developed, or an established business where the owner or manager is growing the business and cash flow is tight as a result of the growth process.
In this situation, a private mortgage for one or two years is likely going to be more cash flow friendly than a bank or institutional commercial mortgage due to the fact that most private mortgages require interest only payments every month instead of principal and interest payments. Under private money financing, the principal is not going to get paid down during the time of the loan, but the capital will be acquired to purchase the building which is going to be the most important consideration for many businesses in this situation.
If you are considering private commercial mortgage financing for any of these or other situations, I suggest that you give me a call so I can go over your requirements with you and suggest different private mortgage options that would be relevant to your needs.