Some people do not understand why an investor might want to use an “alternative lender” (like us here at i Fund Cities), rather than going to the bank for a loan.
Well, honestly, there are as many reasons as there are investment options. The key thing to know is that alternative loans can be more creative, flexible, faster, and come with higher leverage than a bank loan, while still being just as reliable. For that reason, alternative lenders can often provide funding in many situations where the bank cannot or will not.
The following 26 real-life examples illustrate scenarios where using an alternative loan may be your best funding option. In fact, we took many of these sample scenarios directly from loans we have done for our investors!
Talk to an alternative lender if you have:
- No W-2 or 1099 income.
- A low credit score.
- A high debt-to-income ratio.
- A fix and flip deal that needs to close quickly (within a few weeks) or you will lose the deal.
- A project with a short timeline (e.g., one year), and the slightly higher alternative loan interest rate you would pay over that period, in relation to a bank loan, does not amount to much, relative to the whole project.
- Financial issues in your past, but you have a project with high-profit potential and have some money to put down on it.
- A fix-to-rent project that has issues that need resolving before closing, and the bank has walked away.
- A historical home renovation project that falls outside of traditional lending guidelines.
- A turnkey short-term rental, single-family, furnished residence that the bank will not loan on.
- A construction project that is encountering supply chain issues and delays, and you need to refinance your equity out of the project to keep the project moving.
- Cash equity in your projects, and you want to refinance to use your cash for another project.
- A raw land deal that you want to develop, and the bank will not loan on it.
- “Imputed equity” (equity created in getting a property shovel-ready), and you need cash out for money you invested upfront to complete the project.
- A commercial-mixed use deal with 50% residential usage that you plan to improve and then refinance quickly.
- A portfolio of single-family residential properties that you want funded with one loan.
- A fix-to-rent property that you need a bridge loan on (fix) and that you then need transferred to a long-term loan (rent).
- A successful construction/development company with a stellar record in one state, but your bank will not fund you in a new region, due to your lack of experience there.
- A property with an older home on it. You need a short-term rental loan to start, and when the property is demolished for a new luxury build, you are going to need a new construction loan.
- An arrest record and need a second chance.
- A unique property comprising about a half-dozen cottages and a duplex, and the bank cannot figure out how to fund it.
- A need for a portfolio refinance, without a balloon payment.
- A house hack, but you cannot get another one with your debt-to-income situation.
- A need to do a “cash offer – delayed purchase,” to make your offer more attractive to a seller: you want to purchase the property in cash, then finance the transaction within a short amount of time on the back end.
- A property that you unexpectedly need to refinance for cash flow reasons, but you have only owned your property for two months, and it does not meet the bank’s seasoning requirements.
- A project with contractor issues that are delaying completion and your loans are quickly approaching maturity with other lenders. You need to find a lender that will completely refinance you out of your renovation loan.
- Established a strong reputation in your market as a developer and are looking to obtain optimal leverage to support new construction projects, but are finding it difficult to get “spec home” projects done with the bank.
As you can see, there are many different reasons why you might choose to work with an alternative lender rather than getting your loan through the bank. And there are plenty more. For example, in our case, in addition to our ability to offer creative funding options, we are also investors, and we understand the real-life hurdles that you face as an investor. Because of that, our loan officers are more likely to be able to figure out a way to help you close your deal than are traditional bank loan officers.
Smart investors have relationships with alternative lenders. They know that in some deals, speed, flexibility, and having a partner experienced in investing, trumps any slight variations in rates between an alternative lender, like us, and the bank.
Alternative loans are an invaluable tool in an investor’s toolbelt, and experienced investors use our service when it makes the most sense for their deal. We hope this article helps you better understand how choosing an alternative lender can provide you with options, and when it may be the best choice for your project.
Cheers Investor Nation!
The i Fund Cities Team