Borrowing From a Private Money Lender By Harkey, Dan* Court-appointed receivers and bankruptcy lawyers often administer/represent entities with a need for real estate financing, but their estates/clients cannot meet institutional underwriting standards. The primary credit decisions of mainstream institutional lenders are based upon (a) the potential borrower’s credit, (b) the potential borrower’s rating in a FICO scoring system, and (c) the potential borrower’s income. Without prime credit, loans from such institutions generally are not available. But a potential loan derogatorily classified as sub-prime by institutional lending sources is, in many cases, considered to be a prudent lending transaction by private money lenders. Private money lender underwriting focuses primarily upon the protective equity in the real property to secure the loan and, to a lesser extent, on the borrower’s credit history. The circumstances surrounding a potential borrower’s decision to file bankruptcy, or the placing of a receivership over a potential borrower’s real estate assets, is taken into consideration by the private money lender. Most institutional banks simply decline outright to make such loans. In many cases a court-approved private money loan is one alternative where a debtor-in-possession loan or a cram-down loan is needed, and such loans can usually be funded in a timely manner. Oftentimes the needs of such borrowers are unique. Receivers and bankruptcy lawyers working with a private money lender have the flexibility to structure a loan in such a manner to accomplish a troubled borrower’s specific objectives. A successful example of a privately funded loan is as follows:
Additional information is readily available to receivers and counsel
needing money for troubled entities. A booklet entitled “Private Money
Lending Overview” may be downloaded from
www.pointcenter.com, under the
Broker Education section, and DVD and VHS presentations on private money
lending are available by request from
www.pointcenter.com/pmbooklet. |