Loan Types

Basics of Fix and Flip Loans
Due to a number of popular television shows, most people know the premise of buying and flipping properties. An investor acquires a fixer-upper, makes the necessary improvements and, hopefully, sells it for a big profit. In 2017, the average profit on a flipped house was $63,143, which means the practice can certainly be a worthwhile investment. Financing for these purchases can be complicated because traditional mortgages are generally not an option, especially for those flippers who are just starting out. Other traditional loans also take a lot of time to acquire and generally rule out anyone with less than great credit. Fortunately, those people wanting to get into the flipping business do have a number of other financing options.

Why a Fix/Flip Loan?

Getting enough money to buy and renovate a house can be a big challenge. Most lenders want to keep the LTV, loan to value ratio, below 80%, meaning borrowers will need to come up with a 20% down payment. For commercial real estate, the LTC, or loan to cost ratio, is considered. That simply means the ratio of financing to the construction cost, which most lenders want to keep below 80% as well.
The houses involved in a fix and flip are obviously often not worth much as is. They need extensive renovation. That’s why flippers need a lender who will consider the homes ARV, after repair value, which should be a substantial improvement. Traditional loans are usually based on the property’s current appraised value, so those lenders prefer properties that are already in good condition. That’s why those who want to fix and flip usually need to look elsewhere for their money.

Types of Fix/Flip Loans

These loan options are often an excellent way for they buyer to make money, but they do come with heightened risk and higher EBC, effective borrowing costs, the total cost of borrowing which includes appraisals, origination fees, loan fees, etc.

Hard Money Loan

These non-bank loans are a popular option for buyers who plan to quickly sell a property after buying and renovating it. In general, these loans, also known as rehab loans, are easier to get than traditional loans, and they are fast. Borrowers can sometimes apply for and receive their money in approximately two weeks. If the property has enough potential, lenders will work with people with credit issues.
Drawbacks of these loans include higher interest rates, usually between 10% and 20%. Buyers will often pay higher fees as well. The loan is short-term, meant to last for approximately a year. Borrowers can also expect their lender to release the money in partial payments so they can make certain renovations are being done correctly and on time. The home buyer sacrifices some control with this type of loan.

Home Equity Line of Credit

Some people use the equity in their own homes to secure an HELOC, which means using residential assets for a commercial endeavor. The bank allows them an amount based on the home’s equity, or amount that they have paid for, versus the remainder of their mortgage. The money is available, but the homeowner may use some, none, or all of it. For those with at least 20% equity in their home, this option may work, especially since they only pay interest on the money that they actually use.
The interest rates on these loans are favorable and lower than many other loan rates. Banks will let owners borrow up to 85% of their home’s value minus the balance of the original mortgage.
Since the borrower’s home is the collateral for this loan, they can lose their primary residence if they cannot keep up with the payments, so an HELOC should be carefully considered.

Financing Partners

Often, one person brings the construction and market expertise and another brings the financing. Established flippers may be able to bring on a financing partner who brings the money for the purchase and the improvements. While entering into this agreement, the partners decide how the profits will be divided, which usually depends whether the investor provides more than the money. If a home sale is profitable, everyone is happy. If not, they divide the loss according to the previously determined percentage. The flipper can end up making a healthy profit or be responsible for a significant loss.
Other financing possibilities include investments from family and friends or acquiring a personal loan. Some people even tap into their retirement funds. All of these options carry risk as well as the possibility of reward. No buyer should bet everything on a flip project.

Fix and flip loans differ from traditional financing in a number of ways. Borrowers need a loan that can be processed quickly, unlike traditional mortgages, which can take months to finalize. They are usually a short-term loan, and a borrower’s credit history is less important than the real estate’s profit potential. While these fix and flip loans are more flexible, they also have higher interest rates and often carry more risk as well as lender involvement.

Obviously, flippers with a successful history have access to more financial options, but beginners can break into this market. As always, people should seek professional financial advice before beginning the borrowing process.

LenderMatrix can assist in obtaining Fix/ Flip real estate Loans. CLICK HERE TO SUBMIT A FUNDING REQUEST

November 20, 2018 / by / in
Business & Real Estate Loans in the Adult Entertainment Industry

Many banks and lenders have restrictions when it comes to certain industries. In this article, we outline some of the ways in which businesses may be affected by this, if they fall under any category in the adult entertainment industry.

What Types of Industries Could be Restricted?

A restricted industry is a general name for many industries that may not avail of an institution’s services.

In the adult entertainment industry, this could be anywhere from online sex toy shops, to an adult video producer’s line of work. Massage parlors and exotic dance clubs often fall under the restricted industries category.

There is a long history of adult performers having their personal bank accounts shut down without forewarning. It is not limited to smaller lending business, either. The most common cases happened with major financial institutions: JPMorgan Chase, Bank of America, and American Express.

In the eyes of the above-mentioned banks, the adult business cannot obtain the same loans and financial support as other businesses.

For the new adult business owner, this could be a surprise. Getting a loan for a startup fund may be difficult. Even processing payments may have to be handled differently. Paypal is a big name that still prohibits adult industry transactions.

How to Know if You Will Be Able to Request a Loan

It can be difficult to determine from a lending firm or bank. Look for specifications regarding “morality clauses”. These are often a wide range of industries that are still considered taboo. The adult industry is not the only one; other businesses that may be restricted are marijuana companies and weapon sellers.

Those who have ever experienced difficulty getting a loan because of their work in the adult industry should not lose hope. This is simply an obstacle to be overcome.

Anyone who goes into this business and must make financial transactions should acknowledge two facts:

1. Many lenders and banks have moral objections in regards to the adult industry

2. Many folks who work in the adult industry have made financial decisions that put negative implications on everyone else in the business

That being said, there are still ways to get a mortgage for an adult industry business, complete with good rates.

Evidence and Documentation

One of the most important aspects is being in a good financial position. Those who apply for loans must have existing assets. This means being able to prove to the lenders that they have funds to support or pay back a loan.

Documentation should always be prepared. Supporting documents which can prove regular income from an industry, plus proof of larger deposits can usually secure a good business loan.

To secure a loan with an excellent interest rate, a mortgage expert must be consulted.

How to Prove Income in the Adult Entertainment Industry

There are many regulations for nationwide and international banks, put there to minimize illegal discrimination. Legally, no financial institution has the right to deny anyone a loan based on race or color. Same goes for health or disability issues, gender, and religion.

Yet since those regulations do not specifically prohibit adult-industry based discrimination, many in this industry are often wrongly categorized and denied the loans. Unfortunately, it is the small businesses and startups that are most hurt by the policies.

It is, however, a reality that many customers in the adult industry demand refunds, such as in the case where a credit card is used, and the one responsible denies any association with the adult purchase in question. This leads to many financial institutions denying accounts to anyone in the adult industry.

JPMorgan Chase once refused to underwrite a loan, simply stating “moral reasons”. When the client tried to refinance an existing loan, the bank stalled for months, without reason.

Using professional names for bank accounts

One thing we often see with those in the adult entertainment industry is that most of the financial issues are tied to business accounts—not personal ones. This happens in the case where a client uses their industry name or pseudonym when opening a bank account or applying for a loan.

This backfires, however, because it is often times that very pseudonym that is more known in the adult world. And of course, there is the occasional online research a suspicious lender can always do when making background checks.

Finding Real Estate and Business Loans for Your Needs

While preventing serious illegal activities or money laundering is a real concern, adult businesses should not be censored just because someone in the firm has a “moral” concern.

We have even been seeing that this kind of censorship does not prevent folks from doing business. They will simply find a way around it. Bitcoin and other cloud payment options are now becoming more popular, because of this very reason.


November 18, 2018 / by / in
Hard Money Loans 101

Sometimes a traditional mortgage or other bank loan does not work for a particular business. Real estate investors often need alternate forms of financing to fund their renovation projects. Many turn to hard money loans, which are non-bank loans used by real estate investors who buy fix and flip properties. These loans offer fast money and require fewer borrower qualifications than other financing types to these investors, allowing them to complete their projects in a timely manner and profitable manner. Hard money loans do offer fix and flip buyers a number of advantages, but they also offer them some challenges.

Hard Money Basics

People turn to hard money loans because they are fast and require fewer buyer qualifications. When buying flip properties, buyers have to move quickly to beat out the competition. Traditional loans can take weeks or months to close. Banks also hesitate to lend money for properties that are not already in excellent condition since they only consider the current worth of the property. Flippers need lenders who consider the ARV (After Repair Value) since their aim is to buy properties that are in disrepair, fix them and then sell them for a significant profit. A loan for a majority of the purchase price is simply not enough.

Hard money lenders take a different approach toward borrowers as well. Credit scores are not as important for them as they are for a bank. A hard money lender bases their acceptance on the collateral for the loan, the property itself, and not the borrower’s personal finances. If the borrow cannot repay the loan, the lender simply takes the property.

Getting a traditional loan can be a long and grinding process. Hard money loans can be processed in two weeks or less and are for a shorter term than traditional mortgages, usually one to five years. That loan period usually gives the buyer enough time to finish renovations and sell the property, hopefully at a big profit.

Advantages of Hard Money Loans

Hard money loans offer borrowers a number of positive aspects. Real estate investors consider the speed of the process a major advantage of these loans since time is literally money for them. The faster the flip is finished, the more money they should make. Also, people with credit issues can receive financing that wouldn’t be possible through regular loans. The emphasis is on the property’s worth and the buyer’s expertise in the field.

Staying current with a hard money loan is easier than with traditional financing. During the duration of the loan, borrowers only make interest payments and do not repay principal until the property is sold or they secure other financing.

Disadvantages of Hard Money Loans

Hard money loans are costly, usually charging interest rates that range from 7% to 12%. Currently, traditional home mortgage rates are between 4.25% and 4.5%, significantly lower. Also, hard money lenders often charge steep lender fees, up to 10%. The borrower can afford these terms if their renovated property sells for a high enough price. If the property does not sell quickly, the costs can become unsustainable as a long-term expense.

Borrowers may have less power with these loans. Hard money lenders keep firm control of the money and dispense it in a series of payments at predetermined times. Sometimes this schedule leaves the borrower short on funds to continue the home rehab between payments.

Other Hard Money Borrowers

Fix and flippers are the most common hard money borrowers, but buy-and-hold investors may also use them. These buyers want to buy and renovate a property as a long-term investment and not just to fix and flip. Banks often will not lend them the necessary money because the property is not in good enough shape to justify the loan. In that instance, they may seek a hard money “rehab” loan. Once the borrower has renovated the project, they can then refinance their purchase into a permanent loan, rent out the property, and pay back the hard money loan. In this instance, the hard money loan serves as a bridge to traditional financing.

Hard money loans serve an important purpose in real estate transactions. They are a simple way to secure financing for flip and fixers when traditional loans aren’t available or simply do not make sense for the project. These loans are flexible, fast, and relatively easy to get since they rely on the property’s ARV instead of its current value. For real estate investors, they are a go-to method to finance their projects, which are often quite profitable. In 2017, house flippers made an average profit of $68,143 per unit, which is why the practice is still popular.

These loans do have limitations, including a high cost, particularly when compared to regular bank financing. The interest rate and initial fees will take a chunk out of future profits on the project. If something goes wrong with the rehab, the borrower can lose a significant amount of money. House flippers should explore all their options before taking out a hard money loan. In some instances, less expensive financing methods are available to the property buyer.

November 11, 2018 / by / in
SBA Real Estate Loans: What You Must Know

The United States Small Business Administration works with local lenders to give small businesses the affordable loans they need to operate. They have a number of loan programs to meet various business needs, including loans that cover real estate purchases. Borrowers will find it easier to be approved for an SBA loan than a regular bank loan and also enjoy better terms. This loan program also benefits the community at large, which enjoys a more robust local economy as a result of these programs.

SBA 504 Loan

This loan is for commercial real estate that will be occupied by the borrower. The 504 Loan program has concrete advantages for both lender and purchaser. The borrower gets a low down payment, usually just 10% of the total project cost. The loans range from $125,000 to $20 million and are for 20 years, though borrowers could apply for a 25-year loan beginning in April 2018. These loans are at a lower fixed rate, which keeps the monthly payments low and more affordable. Also, no outside collateral is necessary, although personal guaranties by the borrowers of 20% or more ownership are required.

Since the loan is a 40% SBA CDC loan (certified development company program) and 50% bank loan, the lender assumes second position, meaning they incur far less risk than with other loans.

The government does impose certain conditions on these loans. The 504 loan must be used for one or more of the following:

  • To purchase an existing building
  • To acquire land and then construct a new building
  • To expand an existing building
  • To finance building improvements
  • To buy equipment
To be accepted for this loan, the borrower must have 51% occupancy for an existing building, 60% occupancy for new construction, and purchase equipment with a minimum 10-year economic life. The business net worth cannot exceed $15 million, and the average net profit after taxes for two consecutive years must not be more than $5 million.

SBA 7 (a) Loan

This loan has much in common with the 504 but differs in some significant ways. Unlike the 504, the loan structure is negotiable and additional collateral is necessary. In addition to the assets acquired by the financing, a pledge of the borrowers’ personal residence may be required. Both loans do demand personal guaranties by the borrowers of 20% or more ownership.

The program requirements are similar, but with the SBA 7, all assets financed by the loan must be used to the direct benefit of the business.

The loan can be used for the following:

  • To expand, buy or start a business
  • To purchase or construct real estate
  • To refinance business debt
  • To buy equipment
  • To provide operating capital
  • To purchase inventory
  • To make leasehold improvements

This loan requires a 10% minimum down payment and is for businesses with annual sales of no more than $750,000 to $33.5 million for retail, service and agricultural businesses. The company must have between 100 to 1000 employees if it is a wholesale or manufacturing concern. The net worth allowed is determined by the industry type.

The interest rate is adjustable and the loan length is 25 years, generally making the 7(a) more expensive than a 504 loan, in part because the loans are sometimes more risky for the lender. The fees for these loans can be significantly higher than for the 504 and the maximum loan amount is $5 million.

Which is the Best Loan?

The 7(a)offers more flexibility as it can be used to borrow working capital as well as used for a real estate and business purchase. The 504 cannot be used for a business purchase or for working capital. Buying commercial real estate with the 7(a) is more expensive than using the 504, however. Also, there is more personal risk with the 7(a) since it usually involves using personal residences as collateral. If partners are involved in the purchase, the one with more equity in a home will carry more of the financial risk.

The 504 scares off some borrowers because it involves two lenders, and they fear the paperwork will be endless. In fact, most borrowers do not find that to be the case. In some incidences, completing the 7(a) takes longer. Also, the 504 comes with a prepayment penalty, but in most cases, the fees for the 7(a) still make it a more expensive loan.

Many lenders steer their clients toward the 7(a) since its more convenient for them and may be more profitable. For many clients, the 504 actually makes more sense.

For investors wanting to build or buy an existing building or business, one of the two SBA real estate loans might fit their needs. Borrowers may certainly consult with their current lender, but further investigation may be needed to find out which loan will work best for their particular situation. Both loans allow borrowers to get funding that might be out of their reach without SBA help. Lenders like both loan programs, in part because they face less risk from their loans. Current and future business owners can all benefit from these consumer-friendly financing programs.


November 11, 2018 / by / in
Mezzanine Loans Made Simple

Buying commercial properties is often complex, requiring reams of paperwork and huge financial commitments. A simple down payment/mortgage situation may not be possible, in part due to the millions of dollars that are involved in huge commercial real estate transactions. To get the deal done, big borrowers often need the help of a mezzanine loan.

For those not in commercial real estate, a mezzanine may conjure up a picture of that “extra” level that is located between two main floors, often at a theater or concert hall. While these mezzanines are two different creatures, the building description can be applied to the loan type as well. These loans function somewhere between debt and equity, the two main financial floors, making them an important step in financing commercial real estate. Instead of a claim to part of the real estate project or other property, the lender takes company stock as collateral.

Who Uses Mezzanine Loans?

Not everyone can use this type of financing. In general lenders will only provide it when the company involved has an impressive history of quality and profitability. In addition, lenders want to see sound expansion plans from the company that demonstrate growth potential. In short, you need to be an established industry player to get one of these loans.

Mezzanine loans are generally for large amounts, usually around $10 million. In fact, most of these lenders will not make a loan for under $5 million. Preparing these loans is labor intensive, so lenders are reluctant to spend that much time on loans smaller than that. Larger businesses and corporations are almost always the customers for these loans.

Experts say that there are several types of lenders for mezzanine loans. Business people who are planning new construction often apply for them, primarily because commercial construction lenders often demand that the borrower come up with 40% of the construction cost, a hefty amount in most instances.

Also, a borrower may want to “pull out” equity from a property that has grown in value. The terms of the first mortgage may make getting cash from refinancing difficult. A mezzanine loan will allow the borrower to receive some desired capital.

How Do Mezzanine Loans Work?

A mezzanine loan usually carries an interest rate somewhere between 12% – 20%, while the average 2018 commercial real estate loan interest rate is around 4%- 5%. These higher rates carry some risk for the borrower and possible healthy returns for the lender. It functions a little like a second mortgage, but instead of using a property as collateral, a company uses stock in its company. Suppose a buyer is after a $100 million property. They get $75 million traditional financing and agree to put up $15 million of company money. They may be able to get the remaining $10 million through a mezzanine loan, which reduces their capital investment and allows them to move forward with the purchase.

Pros of Mezzanine Financing

One obvious advantage is that companies do not have to come up with as much cash during an acquisition when they use this form of financing. Mezzanine debt is also tax-deductible, which is extremely attractive to borrowers. They can also include the amount of interest they expect to pay as part of the loan balance.

These loans come with a great deal of flexibility as well. When borrowers cannot make an interest payment, their lender may defer some or all of that payment, something that does not often happen where other loans are concerned.

If the company “takes off” after the acquisition, it will grow in value, often quite quickly, allowing management to restructure their mezzanine loan into a traditional loan that comes with a lower rate of interest.

Cons of Mezzanine Financing

Mezzanine loans do come with some drawbacks. For instance, the lender can foreclose on them quite quickly. If the borrower does not make a payment, the lender can foreclose in a mere five weeks as opposed to approximately 18 months to foreclose on a mortgage. While this is a disadvantage for the borrower, it certainly makes life easier for the lender. In fact, the lender can end up owning all the stock of the borrower’s company and perhaps claim ownership of the investment property.

In the case of these loans, the borrower’s investment ranks after the primary investor and the mezzanine loan, meaning they can rather easily lose their entire investment if things do not go well.

Mezzanine loans allow big borrowers with an excellent financial history to reduce their initial capital investment and possibly increase their rate of return. Often, coming up with the required investor portion of a mortgage can impose too great a burden on a company, impeding its ability to function as it needs to during its day to day operations. If the property investment prospers, the borrower can often convert the mezzanine loan into a traditional loan, thus reducing the high rate of interest and saving the business a significant amount of money.

These loans are also somewhat risky and come with a high rate of interest and a quick foreclosure period. In some cases, the lender ends up owning the company.

For those borrowers with big projects, a mezzanine loan may be the best way to go, particularly if they fully understand the potential risk/benefit ratio.


November 8, 2018 / by / in
Fundamentals of Conduit Loans in Commercial Real Estate

All borrowers must look into a number of types of loans on the market. Here is a rundown of CMBS or Commercial Mortgage Backed Securities Loans, most commonly used for commercial properties.

Those who hope to be real estate owners can secure this type of loan from either banks or conduit lenders. Anyone who wants to understand CMBS conduit loans must first understand their structure.

How Conduit Loans Work

In the beginning, commercial mortgage-backed security loans appear like traditional loans. However, the difference is that these loans are placed in a trust where investors can purchase bonds.

Once the loan has been paid off, those investors are able to receive returns on their investments. CMBS loans can be a great way to finance a commercial property. Investors can choose purchases and pick which CMBS securities to buy in view of the level of credit best suited to them.

Who uses Conduit Loans?

CMBS loans are most commonly used when setting up Commercial Real Estate properties. The stakeholders are usually from the hotel and servicing industry, medical professions, retail, storage, or office businesses.

Commercial real estate investors seeking non-recourse loans are most likely to use a CMBS, as it can be secured by a first-position mortgage on a commercial real estate property.

What are the Pros of Conduit Loans?

A Commercial Mortgage Backed Securities Loan can be ideal for saving upfront fees and broker fees. As opposed to a traditional mortgage, a conduit loan is that it often is priced between 1.75% to 2.25% over the local interest rate.

On the upside, CMBS loans can sometimes be more flexible than conventional or agency loans.

What are the Cons of Conduit Loans?

Some CMBS conduit loans criteria are strict, so business owners must decide whether it is for them. If a business is unable to refinance the loan, it will end up being much costlier in the long run.

Prepayment is often complicated, because of penalties and the multiple investors involved. Many CMBS loans are amortized at 30 years, with fixed interest rates.

How to Choose the best option for a real estate loan:

One way that real estate owners can determine the best course of a transaction for the property is to look at the interest rates of conduit loans, taking into consideration their long-term goals.

If an owner borrows a loan, he or she cannot easily sell it, and so getting additional financing on collateral may be complicated.

Finalizing a loan takes time. A good way to get information on all options is to sit down with a mortgage specialist and ask for answers in rates and numbers. Ask questions such as initial costs, long term interest costs, loan sizes and locations.

Take time before you finalize a loan to really understand the pros and cons of CMBS conduit loans. Discuss the options with a mortgage specialist to be fully see the numbers both in the short-term transactional fees and the long-term interest costs.

What Should be considered before closing a conduit loan?

If a borrower is not properly informed of CMBS servicing terms, rules and regulations, then processing these type of requests can be time-consuming due to applicable loan documents and all bondholders.

Here are some common Conduit Loan feature terms to be aware of when signing documents:

  • Term Length/Amortization: CMBS Loans usually have terms from 5-10 years. Typically, a loan “balloons” at the end of the term, and the balance must be paid off.
  • Non-Recourse: This is when Borrowers are not personally liable for the repayment of the loan, unless the Borrower has directly caused the property harm. Yield Maintenance and Misfeasance Penalties: These structures create monetary penalties, so therefore, a borrower should consider markets and hold time. Yield maintenance is based on the value of the difference between the conduit loan’s interest rate and current rates of a conduit loan. The terms are usually 6 months less than the actual conduit loan term.
  • Loan Assumption: This is attractive, normally in high-interest rate environments. It is when the Borrower decides to sell the commercial real estate with which they secured the CMBS Loan. After the sale, they are now the purchaser and are bound by the original terms of the loan. All other borrowers or sellers are hereby exempt from property obligations.

The Conduit Lenders Role

Borrowers seeking the best interest rates on commercial loans should contact Conduit Lenders. They take the stress and complication out of financial deals. It is up to the lender to book the loan, review all the fine details and compliances, then sell it to an insurance company.

Working with Conduit Lenders is ideal if the borrower expects the following:

  • Fixed rates or long-term loans
  • Guaranteed return on investment
  • Guaranteed exclusion of second and third loans on the commercial real estate
  • Guaranteed fixed loan terms. (Absolutely no changes)

Which type of loan is best?

The answer always follows the needs of the clients. Both borrowers and lenders must look at a property’s current and future potential. The should consider the capital necessary, changes in the economy, and goals for the commercial space.


September 30, 2018 / by / in