At the REALTORS Conference & Expo in San Diego last month, lenders and government officials on a panel called “Commercial loan and Financing: The Ever-Changing Landscape “discussed local trends policies and technology that could change the way deals are financed in the near future. Although held in San Diego, the discussion at the expo encompassed everything. California and its predictions are just as true as ever.

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More complete data

Until now, the banks had the upper hand. This is one of the observations from Tom SEO of TechCrunch.com, who commented on JP Morgan’s partnership with OnDeck Capital, an alternative lending company, earlier this month. The news shocked the banking world, as evidenced by a 28% increase in a single day in OnDeck’s share price and has long-term implications for alternative lenders, of which hard money lenders are a critical part. .

The association spooked many private lenders and made them worry that major banks are considering entering their domain. One of the reasons this worries private lenders is the control traditional lenders have over data. Banks collaborate with each other and have access to large amounts of data that private hard money lenders lack. These include years of experience and libraries of account, expense, and risk data. Therefore, they can write credit with greater predictive certainty and confidence.

These data resources have been of great help to banks and other mainstream lending institutions, helping decision makers to assess risks and decide who to accept as customers. Banks have been less likely to default than alternative private, bridge, or hard money lenders who disburse funds out of their own pockets and do not have such extensive collaborations or databases to draw on.

But the advent of the Internet has changed the situation and access to discreet information is improving as technology accelerates. Google has kindly commercial private lenders. Online databases now provide a wealth of background information on almost every aspect of a person’s life – embarrassing to the borrower but critical to the lender. The lender (or almost anyone who knows how to research and is willing to pay for the results) can poke around almost every corner and collect data that a person may not want to disclose. Elizabeth Braman, CCIM, director of production for real estate crowdfunding platform Realty Mogul.com, noted that these databases can also help lenders predict trend lines for future valuation purposes, rather than relying strictly on valuations, They tend to use retrospective data to determine value.

Braman also predicted that over the next five years or so, increasing the amount of this data will make alternative loans much more convenient for both lenders and borrowers. Why for borrowers? Perhaps it will make the process much faster and more convenient. Lenders will also be able to establish controls and structure the loan process accordingly.

Lack of data has sometimes caused lenders to accept people who were unable to meet their obligations. Sometimes this was due to underestimating the demands of the system, underestimating its income, or incompletely appreciating the scope of its obligations. Unfortunately, the results have resulted in defaults, lawsuits, and lenders and borrowers suffering fiscal, psychological and employment stress. Access to more complete and correct data should alleviate and prevent many of these problems.

An increase in the amount of data available will also make it easier for borrowers to provide data to lenders, because many of the data will come directly from sources such as business transaction databases that include CoStar.

The flip side of this situation (doesn’t everything attractive have a flip side?) Is an associated increase in security risks that accompany the growth of data in the commercial lending arena.

The best thing to do, REALTY San Diego Exposition cautioned, is to mitigate, rather than eliminate, risk. Lenders and borrowers will want to be careful about the information they post. Braman says: “Be careful. Do not put anything that is not necessary.”

More loan options

The private loan market is growing. Becoming a hard money lender is tremendously exciting but also risky. The lender must have access to large amounts of money to attract and finance investors. Few, naturally, have such deep pockets. So what do new and future hard money lenders do? They pair up with someone who has the funds. They can be organizations, individuals or some other sources of income. Federal and business regulations in California over the past year have made it difficult for some private lenders to find these investors. It has become particularly difficult for new and emerging investors to find brokers willing to partner with them. Regulations have made the field less attractive to finance and rising prices have kept rates on private loans. Together they have reduced the flood of clients, especially since one of the few attractive points of private money loans is the quick turnaround and paperwork of conventions. TRIDS and other regulations that slow down work stopped that.

On the other hand, there are enough crowdfunding companies that are happy to be represented in trade deals, especially in California. That this is the case was amply demonstrated at the convention where a large part of those present expressed their interest in financing private companies or individuals. Commercial construction in California is on the rise. It is expensive to invest in this type of property, but many investors have been satisfied with the returns. There are still many potential buyers, particularly from foreign countries (and curiously from New York) requesting such deals.

The greatest interest in investments in larger cities, such as Los Angeles, appears to be in Class A commercial space, although there are still crowdfunding opportunities for Class B and C properties in parts of Los Angeles and in smaller cities. popular California. Crowdfunders (at least as convention shows) look more to the private lender’s market experience when making their choice than to market conditions. Property quality, federal / consumer protection regulations, or gloomy predictions are less likely to intimidate you if you are confident that your lender is a market expert who can accurately predict how long-term development will shake up.

So if you are a qualified lender who has been fortunate enough to have great success in real estate history, you are more likely to find financiers who will bet on you and collaborate with you.

Growth in the small business environment

A survey conducted by the National Association of Realtors early last month (November 2015) showed that the best prospects in business applicants come from small businesses and entrepreneurs. This is because California banks have become more cautious about financing them as a result of increasing defaults in recent years. Corporations and established businesses are more likely to receive loans than unfamiliar homeowners or ambitious entrepreneurs new to the scene. This is where the hard money lenders step in and are more likely to get your customers.

Therefore, hard money lending (also known as private investment or bridging) is a sector that is growing by leaps and bounds. It appears to be the future of consumer finance in California as the state becomes more entrepreneurial (perhaps more out of necessity than desire). One factor is that the demand for office space is growing.

Said Braman “I know the rest of your REALTOR friends believe that the American dream is to own your own home. But I believe that in the 21st century the American dream will be to own a business and own your own home.”

And where will this money come from if not from commercial hard money lenders … The future may have challenges, but overall it looks good …