Best Types of Lenders

Which Type of Lender Is Best for Your Business?

Commercial lenders offer businesses a variety of choice when it comes to securing funding for a real estate purchase or refinance, expansion, investment and more. What types of lenders your business should consider rests largely on your business’s creditworthiness and assets as well as how you plan to use the proceeds of your proposed funding. Here are the best lender types for your commercial project.

Traditional Lenders

Well-established businesses with excellent credit and significant collateral are well positioned to secure a loan from a traditional brick-and-mortar lender. These lenders generally save their most competitive rates for their most important (read: well-capitalized) clients. Unfortunately, many businesses, even viable ones, won’t meet these lenders’ stringent underwriting guidelines; there are, however, many additional options.

Private Lenders

The Small Business Administration and Internet-based resources such as CNF Exchange offer additional options for viable businesses that don’t meet traditional lender underwriting guidelines. These lenders and investors, unconstrained by the red tape that typically marks large banks, offer a high degree of customization. Rates may not be as competitive for their clients but their funding options, generally, are greater.

Joint Venture Partnerships

Unlike traditional lenders, a joint venture partner offers funding — with a twist. Businesses looking for more than a traditional lender-borrower relationship utilize the joint venture, which provides an equity ownership stake in exchange for funds used for a project, expansion or better management and sounder finances. Unlike other types of lenders, a business that accepts joint venture funding must accept that the partner will have a say in operations, especially if the business fails to flourish.

Hard Money and Bridge Lenders

Hard money and bridge loans frequently accomplish the same ends, such as improving an existing property or financing the purchase of a new one. Established, viable businesses with good credit and significant collateral often opt for a bridge loan, which is temporary, albeit expensive funding. Loan terms include interest rates several points higher than LIBOR and a term of not longer than one year.

Hard money lenders lend based on equity. As a result, this option is more suitable for a smaller or less-well-funded business. Like bridge loans, rates are high and terms are short. Private lenders generally offer hard money loans.