{"id":455,"date":"2012-03-26T09:24:33","date_gmt":"2012-03-26T16:24:33","guid":{"rendered":"http:\/\/privatemoneysource.com\/broker-blog\/?p=455"},"modified":"2012-03-26T09:24:33","modified_gmt":"2012-03-26T16:24:33","slug":"make-your-borrowers-projects-and-submissions-more-robust","status":"publish","type":"post","link":"https:\/\/privatemoneysource.com\/broker-blog\/?p=455","title":{"rendered":"Make your borrower's projects and submissions More robust"},"content":{"rendered":"

Clay Sparkman<\/em>
\n<\/strong>
\nIn the current climate, it\u2019s getting harder than ever to impress potential lenders with your client\u2019s loan scenarios. It may be that times have changed permanently and that it will be years before lenders return to their pre-2007 comfort level. Until then I thought I would make some suggestions to help you to re-think your borrower\u2019s loan scenarios and try to make them more robust.
\nBy robust, I mean strengthen your loan scenarios for your clients so that they can withstand potential negative factors that might otherwise harm your ability to perform as promised. Things seldom go as planned and when they go wrong, it\u2019s good to have the ability to weather bad tidings. What if it takes your client longer to sell the project than expected? What if the value of the finished project has dropped since it was started? What if a government approval is held up for reasons your borrower can\u2019t control? All of these things could severely impact your borrower\u2019s ability to perform.
\nLenders are critically aware of these items (especially in light of the difficulties in the real estate marketplace during the past 4+ years) and now look to see if a potential borrower is also aware of these items and has a plan to deal with them (and even better, two tiers of backup plans). To that end, I would make some suggestions to help you make your client\u2019s scenarios more robust.
\nLower LTV\u2019s<\/strong>
\nA low LTV can forgive a lot of sins. In the past a 75% LTV was considered the maximum LTV we would consider. While that is not impossible now, it\u2019s more of a low probability event that you\u2019ll find a scenario that can present well at 75%. You should be thinking below 65% or even 60%. Lenders now want a larger cushion to protect against property devaluation. Not only that, having a borrower with more equity means you\u2019ll have some room to work with if you need a loan modification or workout. There may also be enough equity to borrow against to do some debt service on the loan (if need be).
\nThe days of heavy leveraging are over for the time being and we\u2019re ready to work with you to bring your client\u2019s LTV down. You can consider additional cash, seller carries, subordinations, and cross collateral as techniques to lower the LTV. This is where hard money has always shined. We can get creative in helping you to sort this out.
\nMultiple Contingencies<\/strong>
\nNothing ever goes as planned. The borrower should plan for that. Having back-up plans shows that they\u2019re aware of this and prepared to make adjustments if necessary and respond to changes in the marketplace (all of our best developers have back-up plans to their back-up plans). If they can\u2019t sell the house, maybe they should be ready to have it rented. They should build in extra time for delays if they\u2019re waiting for government approvals. If the market changes mid-way into their project, how will they adjust to fit what the market wants? These considerations are what are on lenders mind\u2019s as they\u2019re reading your proposal. If your borrower has well considered answers and plans to deal with multiple contingencies, they\u2019ll demonstrate to their potential lender that they\u2019re a careful planner and prepared for what may happen down the line.
\nFinally, the most important of these contingencies is being able to do the long hold. It\u2019s so important it deserves its own section.
\nDo the Long Hold<\/strong>
\nThe common enemy to most real estate development is time. Market trends come and go. Projects can be delayed. Things inevitably take longer than expected. All along the clock is ticking. You should consider that your borrower might end up not being able to exit as soon as they expected. When this happens, have they prepared for the long hold?
\nDebt service would be critical going forward. Do they have enough cash flow to sustain payments? Is there enough equity to borrow again if needed? These are the questions that the lenders will ask about your borrower. Having a plan to do the long hold (if need be) goes a long way to inspire confidence for lenders.
\nThese three suggestions will go a long way to making your borrower\u2019s projects and loan requests more robust. Following them (and working with your borrowers on their development plans, before asking for funding) will give you and your borrowers a greater chance of getting funded.
\nIf you would like to discuss private money loans further or run a particular scenario by us, please e-mail me at clay@privatemoneysource.com. Otherwise, if you would like to get a better feel for our company and the types of programs we do, please browse our web site at http:\/\/www.privatemoneysource.com<\/a>.
\n\u2013 Clay (clay@privatemoneysource.com, 503-476-2909)
\nClay is Vice President of Fairfield Financial, a primary source for private money since 1964.\u00a0 Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.\u00a0 To submit a loan to Fairfield for consideration: <\/em>http:\/\/www.privatemoneysource.com\/loanproposal.php<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Clay Sparkman In the current climate, it\u2019s getting harder than ever to impress potential lenders with your client\u2019s loan scenarios. It may be that times have changed permanently and that it will be years before lenders return to their pre-2007 comfort level. Until then I thought I would make some suggestions to help you to […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_s2mail":""},"categories":[2,8,9,12,25,26],"tags":[37,38,39,42,43,46,54,55,58,59,62,63,64,65,66],"_links":{"self":[{"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=\/wp\/v2\/posts\/455"}],"collection":[{"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=455"}],"version-history":[{"count":0,"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=\/wp\/v2\/posts\/455\/revisions"}],"wp:attachment":[{"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=455"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=455"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=455"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}