Weighing the Pros and Cons of Large and Small Lenders

Posted by Michael Miller on September 15, 2016

The 2016 Emerging Trends in Real Estate report notes that small banks and other disruptive lenders—like companies such as ours—are filling a niche previously held by large financial institutions. Big banks and other large lenders still have their role in the real estate investment world, but small and mid-size lenders provide alternative options depending on the borrower’s unique needs.

The Business of Big Banks

Banks can offer the lowest interest rates available for rental real estate loans and fix-and-flip properties, but it can take as long as 45 days or more to close on a bank loan—and borrowers typically need to have stellar credit and large deposits with the bank to qualify.

“Banks are slow to close, and typically very conservative in their lending,” says Gene Clark, president and chief legal officer of 5 Arch Funding. For instance, if a property appraises for $400,000, a bank might only be willing to lend between $200,000 and $250,000, requiring a hefty down payment, which can be problematic for investors without access to liquid assets. “In addition this is not the true business banks are focused on and these loans are primarily made for premium customers.”

Hard Money Lenders Step In

Doing business with big banks isn’t for everyone, obviously, so smaller lenders have stepped in to fill a niche. Investors who need cash fast—often in less than five business days—or who don’t have the best credit can often find the funds they need through a smaller lender. “Investors using hard money lenders are often high-risk borrowers, with credit issues looking to have a large percentage of the purchase-price financed, and they’re willing to pay a premium. “This environment has created an opportunity for asset-based lenders like 5 Arch who work with experienced investors in the single family fix or flip rental space where we can provide more attractive interest rates, speed to closing, and ongoing partnership.” says Clark.

5 Arch Funding: Disrupting the Lending Landscape

What if you’re an investor who needs funds to close on a great opportunity quickly? If you have a strong track record, and you don’t want to pay 10 percent or more over the life of your loan, you have another option. “5 Arch Funding offers the best of both worlds,” says Clark. “Our ideal borrowers are investors building long-term real estate relationships, experienced in the business, who need their money fast with assurance of closing.”

5 Arch Funding boasts an average closing time of 11.7 days from the time the borrower submits the loan. “Our borrowers have the benefit of defining their optimal time to close and in some instances we can close in days however most would like to close in 20 days,” says Clark.

Exploring the Advantages of 5 Arch Funding

Best of all, 5 Arch borrowers won’t encounter unexpected bumps in the road caused by the lender. Hard money lenders have been known to delay deals due to lack of funding sources, which is a risk inherent in using smaller lenders. “We have the money available in our pipeline,” says Clark. “If the loan qualifies, we have the funds.”

Likewise, larger banks aren’t exactly known for their high-quality customer service. Lost paperwork or unreasonable requests hours before closing can sometimes delay the process. With 5 Arch’s streamlined, electronic loan process and personalized service, borrowers are always kept in the loop.  

Are you ready to discover a better way to borrow? Contact 5 Arch today.

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