Because we process through so many loans every month and we are constantly sending deals to numerous lenders every week, I get a real good feel for trends in underwriting. So here is the current state of commercial lending from an underwriters perspective……
SBA- SBA lenders have been steady throughout the pandemic as bailout legislation utilized the SBA heavily, but they scaled way back in certain asset classes like hotels and gyms. Which of course, makes sense since those businesses got shut down the hardest. However, those asset classes are beginning to be looked at again. In just the last week we have gotten approvals on 3 hotels and 2 gyms. Restaurants with drive throughs still had money available last year but normal restaurants are being favorably underwritten again. Although many businesses had down years in 2020 which may limit them, a well put together package, maybe with month to month P & L’s showing that most of the losses stemmed from the lockdown and that you are back doing well, can still get approved. There seems to be no fear of another lockdown in the underwriters at the moment so if you can show that you are past last year’s lockdowns, money is available. CAUTION: Lenders are still bogged down with PPP loans and banks are VERY slow. Although we do have a few new lenders that are NOT backed up and with them we can still close in the 45-60 day timeframe, that is not normal. So patience is needed on SBA loans…..
Conventional Loans- it is interesting, but even though banks are flush with cash, they have not significantly loosened guidelines on conventional loans. They almost will never do a cash out loan, and they are still steering clear of tough asset classes. Retail loans are still tougher to get done then Multi-family and industrial and often will have to put 5-10% more down with the exception of corporate NNN deals which are still aggressively bid on. Although they remain cautious, if a property or a borrower is strong, there is certainly money available and the rates, although edging up of late, are still very low. Competition for great deals is VERY hot with life companies, CMBS companies and banks all duking it out for the best assets and borrowers. Marginal deals are still generally not being done by the banks and need to look at private money or alternative lending sources.
Private Money Lenders- like conventional lenders, private money lenders are FLUSH on cash. There is NO SHORTAGE of money available in commercial lending right now-the #1 complaint of private money lenders is that there are not enough good deals. Private money guys are not stupid, they will not underwrite deals that make no sense. But they are aggressive and go after the deals that no bank will touch. I just got a $50 Million dollar approval on a land deal in FL and a $22 Million approval on a construction loan for an assisted living facility in FL at an LTV above 80%. So the money is out there….but the deal has to work for the lender. All lenders have different hot spots so it pays to use someone who has a lot of sources and knows what each lender likes. As a private money lender ourself, we understand private money and have great partners that can get a broad range of deals done…..
Alternative Lenders- Probably the biggest growth in the last 3 months has been in the alternative space. This is the space between bank and private money, just misses the bank qualifications, and too good for the private money lenders. This space almost got completely shut down back in Q2 of last year. But over the last 3 months, with vaccines and massive expansion of the money supply, these lenders are getting funded again and are getting aggressive with new players entering the space and old players opening up like they were before. We have a multitude of options now for deals that just miss the banks. We truly are THE PLACE TO GO WHEN THE BANKS SAY NO.
In summary, there is plenty of money available among all types of lending classifications. With lots of money available and lenders loosening restrictions, this bodes very well for continued economic expansion. The fact that there is not “stupid money” out there, meaning, lenders are still being prudent, also is BULLISH for growth. It is a good time to be in lending. As long as there is no disruptive economic event, the fundamentals look good for continued expansion. Businesses would do well to learn from the lenders-be aggressive, but under control. And if a disruptive event happens, be quick to respond. Do that, and you can have a successful year!