Peer to peer lenders: The right source for your Commercial Loan?

Peer to peer lending is an innovative type of commercial lending that connects borrowers and lenders directly. It is important to understand how the Peer to Peer lending process works and to ask yourself the right questions.

First, what is Peer to Peer (P2P) lending? Sometimes referred to as “social lending”, P2P lending occurs on online platforms that link borrowers with potential investors. These websites act as intermediaries between both parties. They perform the underwriting process and facilitate transactions between borrowers and lenders. This removes the middleman (i.e. the bank) from the lending process. Because of the savings and convenience involved, P2P financing is growing rapidly and is expected to be a 150 billion dollar industry by 2025. Considering this rapid growth, P2P lending may seem like an attractive option but you should be aware of the process and the advantages and disadvantages involved.

What does the P2P lending process entail? You the borrower sign up on a P2P lending site such as Lending Club or Prosper. After joining you submit a loan application, describing the amount you want to borrow and what you intend to use it for. The site then reviews this information, reviews your financial records and credit score and assigns your loan a certain risk factor. Once your application is approved by the site it is then posted. Potential investors then decide whether or not they are willing to fund your loan, how much they want to invest and what the terms the loan should be. Your proposal then remains on the site until it is fully funded or you withdraw your application.

What are the main benefits of P2P lending? Processing is much faster than traditional commercial lending. Because the process occurs online there is a minimal amount of paperwork involved. P2P platforms act as facilitators between individuals, both borrowers and investors and the lending process can potentially be more personal. Individual lenders may be willing to overlook a poor credit score if your application is compelling and well thought out. This may result in better terms and lower interest rates than you would receive through traditional financing.

But there are drawbacks in Peer-to-Peer lending that you should take into account.

Even though loan processing may be faster on P2P sites, it may take a considerable amount of time before your loan is fully financed. This mainly depends on the P2P platform and whether your application is auctioned. In certain circumstances you may be required to present additional documentation or take further steps to secure the funding you need. These additional steps can be time consuming and potentially complicate the process.

Considering Peer-to-Peer commercial lending is about asking yourself the right questions

Considering how the P2P lending process works you should first ask yourself how quickly do you need the money? Depending on your situation it can take a long time before your loan is fully financed. If you need your funding within a specific time frame, you may want to evaluate other financing options. Consider your financial standing as well. See the various loans your credit score qualifies you for on a variety of P2P lending sites. Compare this to other sources of financing and find the one that offers the best terms. However knowing how the peer-to-peer lending process works, as well as the benefits and risks will help you decide if it is the right financing option for you.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Considerations before you get a Commercial Loan

Judging whether or not your business can afford a commercial loan comes down to three questions. Can you pay the loan; will you pay the loan and what will happen if you can’t pay the loan?

There is some math involved in answering these questions but knowing a few figures can help you evaluate your financial performance and judge whether taking out a commercial loan is worth it.

To answer the first question, can you pay the loan, you need to calculate your Debt Service Coverage Ratio (DSCR). This figure tells you the amount of money you have on hand each year to pay your debts. Your DSCR is calculated by subtracting your monthly income from your monthly expenses and multiplying the result by twelve. This gives you the amount of money you have available each year. Then you estimate what the cost of the potential loan is and divide that into the first number. Potential lenders consider a DSCR of 1.25 to be reasonable. If your DSCR is lower than 1.25, you probably cant afford to take out a loan. Knowing your DSCR helps you evaluate if you can afford any potential loan on a yearly basis.

To answer the second question, you need to know the ratio of your income vs. your outstanding debt obligations is (Debt to Income ratio or DTI). Knowing this figure will help you judge if you will be able to pay back any loan in the long run. To calculate your DTI add up all your outstanding personal and business debts, divide it by your monthly income and multiple the result by 100. This number clarifies whether your income exceeds your debts or whether your debts exceed your income. A DCI greater than 36 indicates you should avoid additional borrowing. This number gives you a sense of your financial performance on a monthly basis and indicates whether you will be able to keep up with your loan payments.

But even knowing your DSCR and DTI doesn't answer the fundamental question. Is taking out a commercial loan worth it?

You may need to consult an accountant or business advisor in order to answer this question. The answer involves a nuanced process known as Loan Performance Analysis. In layman's terms this process gives you a sense of the risks of borrowing versus the rewards of additional investment. Look at your current profitability and compare it to the revenue any new investment might produce. It is important that you are realistic during this process. Optimistic projections about potential revenue wont clarify the risks of additional borrowing. Consider multiple scenarios throughout this process as well in order to get a better understanding of your situation. Loan Performance Analysis may be more subjective than calculating your DSCR or DTI but it will further clarify whether getting a loan is actually worth it.

Plan ahead and understand the impact defaulting may have on your business

Life happens and things could change rapidly in your business. Even the most conservative projections during loan-performance analysis may not reflect the reality of a potential disaster. You should always be aware of the risks involved in defaulting on any potential loan. Do you have enough collateral to cover the loan? If not you may be personally responsible for paying off the remaining balance. Carefully consider whether you are willing to risk your personal property before taking out any loan. However knowing these figures, your DSCR, DTI and performing Loan Performance Analysis will give you a good sense of whether taking out a loan is worth it.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Evaluating where to get commercial loans online

The bewildering array of options for commercial financing online can make it difficult to tell who you can trust. A good lender will be interested in your business, be up-front about fees and will offer good customer service.

A good lender will want to know about your business and the reasons you need financing. Be sure the lender isn't trying to offer you money too quickly. Few loans can clear within three days. If a lender is offering you fast-money, without thoroughly consulting you it is probably best to reevaluate your options. Additionally ensure a lender isn't merely offering you the maximum loan amount. Compare your options and see the types of loans your credit score qualifies you to receive and compare this to what the lender is actually offering. If it seems like a potential lender is offering you more money than you would otherwise qualify for, it may be a warning sign that the lender is giving you a loan which you couldn't possibly pay off.

Ensure potential lenders are transparent about the cost of the loan and that you understand the process. Is the lender up front about the terms and conditions of the loan? How willing is the lender to discuss the total cost of the loan in terms of APR? If they are vague about these details you may want to look elsewhere. Ask about pre-payment penalties and understand the lien structure of the loan. Heavy pre-payment penalties and blanket liens may be an indication that the lender does not want you to move onto more traditional financing. Look out for inflated fees, anything above twenty percent of the total loan amount is considered unreasonable and always know what you are signing throughout the process. Some predatory lenders may persuade you to sign multiple forms. You may be agreeing to pay higher fees. Read any documents carefully throughout process and ask the lender to explain each one. If the lender is vague about the process or unwilling to explain what you are signing, consider other options.

Above all trust your instincts when reviewing potential lenders.

Perform your due diligence, review the lenders website and seek out customer reviews. If their website seems wrong or if the reviews are mainly negative obviously you should look elsewhere. A good lender will have helpful advice and will communicate clearly with you. They will want to understand your needs and ensure you understand the terms of the loan you are applying for. If a lenders customer service is impersonal or unhelpful take it as a sign that they don't have your best interests at heart.

Above all a good commercial lender is a good communicator

Knowing who to trust when you get financing online may be difficult. But a good lender consults you about your needs, explains the process clearly and is willing to offer you sound advice. Following these guiding principles and trusting your instincts will help you avoid falling prey to predatory lenders.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Invoice Factoring: A win-win?

Invoice factoring, depending on your situation could be a great way to plug gaps in your revenue stream. It is low risk, easy to qualify for and can even smooth out your business operations.

First how does invoice factoring work? Invoice factoring involves selling your outstanding invoices to a factoring company or a “factor.” The factor buys your outstanding invoices and gives you a percentage on the amount owed to you in advance. The percentage given is usually 70 to 90 percent of the outstanding invoice. After the customer pays the invoice, the business receives the payment minus a fee charged by the factor. Essentially invoice factoring is debt free, as you are borrowing against money already owed to you. This makes invoice factoring a great way for certain types of businesses to raise money.

How do you qualify? First most factors are more concerned with the credit rating of your customers. You as a business owner only need outstanding invoices to qualify. But there are some basic terms and conditions many “factors” consider before you can be approved. You must have customers with outstanding invoices. The invoice your borrowing against must be due within 90 days. Obviously you cannot sell a single invoice to multiple factors and you should have a relatively clean business record. Depending on the factor your credit score may also be an issue. But if you as a business can meet these basic conditions you can likely borrow against your outstanding invoices. This can help you take advantage of immediate opportunities or plug gaps in your revenue stream.

Invoice factoring is helpful for particular businesses that need cash quickly or that have lags in payments by customers.

If you need funding quickly to take advantage of immediate opportunities or to pay for an unexpected expense then invoice factoring is a great way to raise the necessary funds. The traditional financing process can take awhile and depending on your situation you may not even qualify. Additionally if your business is seasonal, invoice factoring can smooth gaps in your revenue stream. This advantage also applies If your customers don't pay their bills quickly. Invoice factoring can shorten the payment cycle and help you get the money you are owed faster. Some factors can even manage outstanding accounts, thereby easing your business operations and saving you the difficulty of collecting payments from your customers. In short, invoice factoring is a low-risk way to raise money quickly, in specific situations and for specific types of businesses.

Potentially all parties involved could benefit from invoice factoring.

The borrower, the lender and the customer could all potentially reap the benefits of invoice factoring. You the borrower get the money your already owed. Additionally if you outsource your collections to your factor, your customer could find it easier to pay their bills. The factor also benefits collecting a fee at the end of the process. Invoice factoring may not work for every business. Evaluate your situation carefully. But if you have many outstanding invoices, need money quickly or have slow paying customers then invoice factoring may be right for you.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Is There a Danger of an Alternative Lending Bubble?

Online “alternative lenders” have emerged as a vital source of capital for small businesses. But some of these lenders may be predatory and rising defaults may put the entire industry at risk.

Following the Great Recession small businesses have faced increased difficulty getting loans from traditional banks. According to the Federal Deposit Insurance Corporation, loans under one million dollars have been declining every year and are twenty percent below pre-recession levels. A plethora of alternative lenders have emerged online, in order to meet the demands of small businesses that need financing. The loans such lenders offer are easy to qualify for but oftentimes can be very expensive. Furthermore this online marketplace is in essence completely unregulated. A lack of regulation and transparency puts many small business owners at risk of taking out loans from predatory lenders.

Unscrupulous lenders can avoid regulation simply by packaging their loans as advances. Because of this usury protections do not apply to these “advances” and there is no ceiling for what can be charged in interest. Triple digit APR is not uncommon in these cases. Many borrowers may be unaware of the total coast of the loan they are being offered. This is because there is no legal standard of disclosure when it comes to commercial lending. This enables predatory lenders to disguise the amount they charge in interest rates and fees. For example a lender may quote a ten percent interest rate, in reality this is only the monthly rate for the loan. The total interest on this loan amounts to one hundred and twenty percent annually. The lack of clear legal standards in the alternative lending industry could lead to a dangerous trend.

The explosion in online lending to small businesses could be following a familiar pattern, with alternative lenders issuing loans to unqualified borrowers in the pursuit of rapid growth.

Some liken the online commercial lending industry to the Wild West The fact that such loans are easy to qualify for ensures consistent demand from small business owners. Securitization of these loans and merchant cash advances in particular ( generally the riskiest and most expensive type of business loan available), could result in a pattern where online lenders issue loans to unqualified borrowers in the pursuit of rapid growth. In addition there is speculation that many online alternative lenders are overvalued, potentially forcing some organizations to justify their value by issuing new loans at all costs

Online alternative lenders are an invaluable resource for small businesses. However more needs to be done to protect both lenders and borrowers.

To begin with the rates on commercial loans issued online need to be competitive and fall within a reasonable standard. There needs to be a minimum amount of disclosure on the part of lenders to inform borrowers what the total cost of the loan will be. This will help borrowers avoid taking out loans they cannot afford. These basic protections will help protect borrowers from default, help lenders manage risk and protect the industry as a whole.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Micro-loans: The Help You Need?

Micro-loans are small loans often issued by non-profit community development organizations. Micro-loans are an excellent option for new business owners who are passionate about their idea, but who may not qualify for financing elsewhere.

The Small Business Administration defines a micro-loan as a commercial loan for less than 50,000 dollars. They are often issued SBA backed organizations, however not all micro-lenders are sponsored by the SBA.

Micro-loans usually have less stringent qualifications than traditional loans. They can be an excellent source of financing for business owners without good credit or collateral. Micro-lenders are generally not for profit organizations, seeking to develop businesses within their communities. Often these organizations are looking for a good idea instead of a good credit score. These organizations invest time and energy in supporting borrowers in order to help them develop their businesses. They may even go so far as to contact a borrowers personal references in order to help them qualify. This personal touch means micro-loans may be easier to qualify for than traditional financing.

Micro-loans are also relatively inexpensive compared to other types of start-up financing. Interest rates are generally between 5 and 18 percent. Micro-lenders also offer educational resources. SBA backed micro-lenders must offer training for borrowers in subjects like money management and business planning. These educational resources can translate into long term success for new businesses.

Micro-loans present the opportunity to new business owners to secure the financing they need, learn strategies for long term success and improve their business credit score.

As borrowers pay down the balance of their micro-loan they build up their businesses credit score. This improvement can help new businesses qualify for more traditional financing in the future. This coupled with the education micro-lenders offer helps ensure new businesses succeed. All these factors translate into micro-loans being an excellent type of commercial loan for new business owners.

Micro-lenders offer a personalized approach not often found at traditional banks. The loans themselves are inexpensive compared to other types of financing available to new businesses . Education helps new businesses plan for future success. Above all micro-loans present the opportunity for new business owners to build their business credit score.

Micro-loans may be the safest type of commercial loan available to new business owners.

If your uncertain about the nuances of starting or running a business, but a have a great idea, a micro loan may be right for you. The education offered by micro-lenders will potentially equip you with knowledge and strategies for long term success. The borrower-focused approach of these organizations means micro-loans may be easier to qualify for than other types of financing. Above all getting a micro-loan gives you the opportunity to build credit and can help you avoid pursuing more expensive methods of start-up financing.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

How Preparing a Business Plan Can Help You Obtain a Commercial Real Estate Loans

Commercial real estate loans may seem hard to get approval for, but not if you have one of the key components lenders look at — a strong business plan. Here are some simple tips for creating a strong business plan.

Start with a summary — strong statements that serve as the outline of your plan. This should inform the reader of exactly what you truly want to do with your business, what you are requesting and how it will be used to grow your company. This should come directly after the title page.

Next include a description of your company and the industry in general. Don’t assume the banks have an in-depth knowledge of your particular niche. Include information about current trends and future opportunities for growth and revenue. In addition, noting specifics about the markets in your specific industry and some of the new developments that you can use to leverage your own business is beneficial to a strong business plan.

A market analysis should be included in your business plan. Hard numbers that show all aspects of the market that can be defined in a way to position your company as a strategic player in this field. Include your own unique market strategy approaches and ideas here too. In addition to market analysis, including an analysis of your direct competition — and their strengths and weaknesses — is another critical element of a strong business plan. This shows your ability to pinpoint problems, and an opportunity to present solutions. You can explain here how your company would avoid these same pitfalls or build upon these same areas of strength.

How will a business plan determine whether a bank or lender will approve my commercial real estate loan?

Additional factors such as your business development strategies, how you will chart and track production, market the company, create and stick to a budget, managing the day-to-day business operations running smoothly, any specific logistics, and charting the responsibilities of your management team all point to your ability to run your company successfully. Banks and lenders need to feel confident that they will see a return in their investment. It’s your job to sell that to them and ultimately get them to approve your commercial real estate loan.

Making your business plan stand out is almost as important as what your business plan includes.

Using the proper tools to present your business plan is crucial. Presenting in a clean and easy way with real numbers, facts, and any hard data you have to “prove your case” can be beneficial to your commercial real estate loan approval.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage