There are a lot of different ways to structure a commercial loan in order to close a tougher deal. Here are just a few:
- Carrying Back a Second Mortgage on a Different Property. Suppose a seller is motivated to sell his property, and your buyer lacks the full 35% cash down payment often required by banks nowadays. The typical bank will also prohibit junior financing. Here's a trick: Get the seller to carry back his second mortgage on a different property owned by the buyer, say, a rental home or his vacation home.
- Subordination for a Partial Paydown. At Blackburne & Sons, we use this trick all of the time. Suppose a former seller has a $1 million ballooning note. Because commercial real estate has fallen about 45% since the start of the Great Recession, perhaps the largest prudent new commercial loan that can be made is just $600,000. Many times the former seller will take just $600,000 now and will subordinate his remaining $400,000 as a second mortgage. Most banks today will not allow junior financing, but Blackburne & Sons will!
- Blanket Other Collateral. If the deal is close, frequently a commercial lender can be convinced to do the deal if he can also have a second mortgage on the borrower's personal residence and/or another property.
- Bring In an Outside Personal Guarantor. If the borrower's credit is flawed or his net worth is small compared to the loan request, you can often help a commercial lender to get comfortable by bringing in the borrower's father, brother, or friend to personally guarantee the loan.
- Have the Borrower Bring Cash to the Closing Table. Let's suppose the borrower has a $720,000 ballooning loan, but he can only qualify for a $600,000 refinance. The borrower may be able to raise the remaining $120,000 by selling some stocks, liquidating his IRA, or refinancing his house.
- Convince the Bank to Take a Discounted Pay Off (DPO). Banks have never been more willing to accept 65 cents on the dollar in order to get a commercial loan off the books. Most banks are under heavy pressure from their regulators to clear their troubled commercial loans off the books. At Blackburne & Sons, we have seen a great many banks accept DPO's recently. We love to help borrowers pay off banks at a discount.
- Sometimes the Borrower Just Has to Accept a Smaller Loan. Every borrower wants max cash, but sometimes he just needs to be convinced that you are getting him the most cash that is possible.
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