In optimal conditions -- where the borrower has excellent credit, the economy is humming with money, and market trends are favorable -- traditional banks serve a pivotal role. But what of transactions that don’t fit a tidy formula? High yields demand a higher tolerance for risk. When conventional financing falls short, the entrepreneur is faced with surrendering equity to a partner (an expensive reprieve with long-term consequences) or looking to private money.

For many business people the choice comes down to dollars and cents. A partner may command as much as 50% to 75% of the profits, whereas an asset-based lender garners 12 to 15% at best. While some would balk at spreads in the low to mid-teens, the borrower may stand to gain hundreds of thousands – even millions – of dollars, which tends to put things in perspective.

Private lenders offer the investor three important advantages:

1. A quick response rate – Traditional banks may take months to approve (or deny)
   a loan. Private lenders typically close in less than half that time.
2. Flexible loan structure – While banks impose rigid criteria on transactions, influenced by general market conditions and a broad set of indicators, private lenders tend to
   work with the borrower’s specifics, customizing each transaction.
3. Increased leverage – Flexible loan structure, competitive Loan-To-Value/Loan-To-Cost, and less cash up front enables the borrower to capitalize on sweat equity.

Consider the scenarios that follow. They represent recent closings at MEECORP CAPITAL MARKETS, a lender specializing in non-conforming transactions.

Earlier this year, MEECORP was approached by a real estate professional in Red Bluff, California to fund the purchase of a motel complex comprised of 7 multi-use buildings on some 6 acres of land. The properties were cash-flowing well, but the borrower had to move fast on the deal and his assets were largely tied up in other real estate. True to form, MEECORP structured a $2,750,000 bridge loan in less than 30 days with little money down, enabling the borrower to take possession of the property and enjoy immediate income.

Another developer came to MEECORP for a loan to buy a marina and some adjoining real estate in New Jersey, but had no cash of his own to put into the project. With extensive experience in real estate, he had negotiated a low purchase price, and had excellent ideas for enhancing the value of the property. Unfortunately, the borrower’s credit was compromised by a bankruptcy, and he had only a small window of opportunity with the seller. MEECORP managed to structure a $2,700,00 interest-only bridge loan that gave the developer the opportunity to expand the facility and enjoy an increase in income and value.

A third example involves a riverfront property in Union City, NJ that the borrower planned to develop into luxury condominiums. By the time he came to MEECORP, he had used up much of his credit, and found that conventional banks were unwilling to lend against land. MEECORP offered him a bridge and construction loan to complete the necessary infrastructural and pre-construction site work. After 13 months, a national developer offered to take over the project, and the borrower realized millions in profit.

The role of the “hard money” lender is to work with the forces of supply and demand, and fill the vacuum created by more conservative bankers. By finding creative solutions to cash-flow problems, they enable entrepreneurs to seize the moment. As the scenarios above suggest, there is money to be made on both sides of the equation.