from the desk of the broker...

2011-09-08T09:25:00.000-06:00

blog has moved to

http://fromthedeskofthebroker.wordpress.com/

Need less than $2M - don't go to a bank (or a broker)

2011-09-01T20:17:00.001-06:00

After 1,138 calls this year I can confirm that if you need less than $2,000,000 for a commercial mortgage or a business loan don't call a bank and don't
bother calling a broker - unless you know what you are looking for. The broker you talk to might only know a few lenders with limited options and the banker you talk to may not know how to handle your request properly if you can't be specific about your need. There is a very limited market of people that can help borrowers looking for less than $2,000,000.

Today I had a conversation over email with an individual purchasing his first multi-unit investment property. Here are the highlights of the questions that pretty much capture the challenge for individuals borrowing less than $2,000,000:

- why did my real estate agent pick a closing date that doesn't give me enough time to figure out if I can get financing?
- don't banks pay commissions to brokers for arranging a commercial mortgage?
- if my down payment is more will my interest rate be less?
- a bank will have conditions that need to be met? are these the same as the conditions in my real estate contract?

The questions are good questions - however the individual was already committed to a transaction with a signed purchase agreement. Wrong time to be asking these questions. It's a waste of their time and everyone else that is involved.

If you need less than $2,000,000 for a commercial mortgage or a business loan, do your homework first. Know your credit score, know your net worth, know how much income is available to pay for the debt and understand what kind of lender is able to do your deal based on what you have to work with.

For more than 15 years I have listened to people tell their story about the financing they need. We have used our Pre Approval Package to help borrowers learn what they can afford and what will be involved in getting financing before they commit to a borrowing decision. There's no point in talking to a bank or a broker if you don't know what you are looking for.

Manufacturing client needs real cash

2011-08-30T21:12:00.005-06:00

Client says "I think I need about $750,000 in working capital to keep up with my business growth".

Our response "how do you know that's how much you need?"

It turns out that after undertaking our Business Diagnostic we were able to isolate the specific amount of financing they needed. As well, our Business Diagnostic was able to show our client that they were paying their bills in 31 days and collecting from customers in 88 days (on average). The client could change their cash flow (not their revenue) by over $400,000 over the course of the year by managing their receivables and payables more aggressively.

At Bridge Capital we see it all. We have also developed a full service offering to make sure that we can help clients do more by getting them the financing they need. In this case, we have arranged for some interim factoring (accounts receivable financing) to help get our client to their year end. Once their year end is done we can take them to a bank and get them a proper working capital line. Our client is not bankable today however with two (2) years of financial statements in hand we can make a strong case that the business has turned around.

Another solution we put in place was to arrange for some private equity to purchase some of the equipment that our client produces. The equipment was already set to go out on lease and by bringing some private equity forward we were able to free up some immediate cash for our client and provide a opportunity to an investor that had cash sitting idle.

It's important to know your options - because the list is endless.

Vendor Mortgages

2011-07-12T10:54:00.000-06:00

Personal Guarantees - do I really need to provide one?

2011-06-10T14:17:00.005-06:00

If you have never had a commercial mortgage or business loan or have had very few, providing a personal guarantee may be something that you are naturally uncomfortable to do. However, non-recourse mortgages and loans where a bank or lender agrees to provide you with money and not ask for a personal guarantee are hard to come by. The trade off usually ends up being that a bank or lender may charge significantly higher interest rates and/or fees to have the personal guarantee requirement removed as a condition of financing. The general rational for having a borrower provide a personal guarantee is that a bank or lender is not able to profit from a mortgage or loan they provide to you. A bank or lender can earn interest and can charge fees but cannot participate in the profit. As a result, a bank will look to limit their risk by requiring the borrower (who does have the opportunity to earn profit) to provide their personal guarantee to ensure that the mortgage or loan will be taken care of. Without a personal guarantee a borrower would lack the motivation to ensure that a mortgage or loan was repaid. Without a personal guarantee, banks and lenders would not need borrowers but rather managers to manage their investments. Borrowers have an interest in making sure that a mortgage or loan is repaid and their motivation is profit and avoiding the legal ramifications of not repaying a mortgage or loan.

Every deal is unique and there is not a "one size fits all" answer to each deal. If you are concerned about providing a personal guarantee it may give you the chance to re-visit the opportunity to determine if the profit is worth the risk that a bank or lender may look to recover their money from your personal guarantee. As well, there are programs for small businesses that involve government sponsored loans provided by a bank or lender.

Minimum down payment for commercial mortgages

2011-05-24T14:35:00.000-06:00

"How much is the minimum for a downpayment on a commercial purchase? 20% down?"

We get this question a lot. There are many different ways to answer this question. Generally speaking, if a borrower has a strong net worth statement and collateral security a bank or lender may be prepared to lend more than 80% of a property value if they can be granted collateral security by the borrower so that their overall exposure is less than 80%. For example, a borrower may have a personal residence or commercial property that has equity in it and has some cash to purchase a second building. A bank or lender may be prepared to lend more than 65% of the value of the new property being purchased if they can also register a mortgage on the borrower's other properties.

If a borrower is purchasing a property for their own business use and it is not for investment purposes (defined generally as the borrower's business occupying more than 50% of the building footprint) then a bank may be prepared to lend past traditional limits especially if the mortgage amount is less than $500,000 as it may qualify for the Canadian Small Business Loan Program.

Every commercial mortgage or business loan transaction is unique and can require creativity to get a client an approval. If you have a transaction you would like us to take a look at, send us a note or use our Commercial Mortgage Calculator or Business Loan Calculator to see what might be available.

bridgeFEED beta launched

2011-05-13T21:15:00.002-06:00

Being in the mortgage and loan business, we get the opportunity to work with many interesting people, deals and opportunities. Most of the time a conversation will start with "What's going on in the market? What type of deals are you seeing?" so we decided to provide a constant answer to that question and have launched bridgeFEED - a stream of deals as we get them from our Bridge Capital Partners and other sources. We see it all and now you can too. If you are looking for a mortgage or a loan check out the bridgeFEED to see what others are asking for. If you are a bank, lender or investor check out the bridgeFEED to see if you have money available for the types of requests being posted.

We look forward to continuing to bridge borrowers and lenders and if you have any questions, comments or suggestions please email them to us at marketing@bridgecap.ca

Frustrating for borrowers

2011-05-02T12:48:00.001-06:00

Land transactions - specifically refinances - have been tough to find financing for since at least mid 2008 and continue to be a struggle. In the past 30 days we have seen half a dozen land transactions just outside of major city centres in Alberta. In three of the cases, the borrowers have managed to hold the land for future residential development through the recent economic downturn and are now looking to capitalize on pre-sales and renewed interest from purchasers in their projects. Unfortunately traditional banks won't really consider providing financing for these transactions mostly because the borrowers have limited net worth that can be used to support a personal guarantee. The resulting effect is that borrowers need to use mid-market or private financing however lenders in this category still do not feel comfortable lending outside of major city centres. So borrowers have land, pre-sales and are going into a stronger sales market but do not have access to the capital they need to move their projects forward. We have managed to re-structure some of these opportunities so they require less financing however it still continues to be a struggle to help these borrowers get out from underneath their projects.

If you have a project you would like us to take a look at, please do not hesitate to contact us at www.bridgecap.ca

Working Capital in demand

2011-03-08T13:27:00.000-07:00

We see a trend with small business owners and their need for capital. For most small businesses cash flow is critical and most cash flow challenges come from the difference between their accounts receivable and their accounts payable. Factoring or accounts receivable financing is very popular today as most business do not qualify for a working capital loan or line of credit. The reason for this is that a bank or lender who can provide a working capital loan or a line of credit will need to review two or three years of financial statements to determine whether or not a business meets the criteria. The challenge lies in most businesses not being able to demonstrate over a two or three year period that their business is healthy. Most businesses today can prove that the past 12 or 18 months have been good but that is not a long enough period of time for most banks to use in determining an approval for a working capital loan or line of credit. Working capital loans or line of credit are more affordable and less expensive than factoring or accounts receivable financing but most businesses today are still too far away to qualify. In the meantime, it is worth a business understanding their cash flow challenges to see if there are other ways in which they can address the problem. Using other assets for secured debt might be more affordable or at the very least making sure that factoring or accounts receivable financing is being used properly.

If you have questions about your business and the financing it might need, please do not hesitate to contact us at dylan@bridgecap.ca or www.bridgecap.ca

Residential Mortgage Rules Change - finally!

2011-02-09T08:15:00.002-07:00

Recently the Government of Canada announced changes to the mortgage lending rules including:

- Maximum amortization for a mortgage is 30 years (down from 40 and 35)
- Refinancing a mortgage is limited to 85% of the property value (down from 90% and 95%)
- Lines of credit will no longer be insured by CMHC (this means that a bank will still provide a line of credit that will be limited to a maximum of 80% of the value of a property)

These rules are design to save people from themselves and to make sure they do not incur more debt than they can handle. Some in the marketplace have suggested that these changes will negatively impact the real estate market and the mortgage brokerage business. If you can create a marketplace of healthy borrowers who are not taking on more debt than they can afford and the government is working to encourage regulatory changes that offer consumers more protection how could anything but a great result be produced? There may be some very short term adjustments that will be made by all however the market is efficient and will sort itself out. Individuals working within this marketplace need to be seeking opportunities for improvement and profitability. Mortgage brokers can offer a tremendous amount of value to consumers and now is a great time to be investing in activities that help consumers understand how they can take advantage of homeownership.

Somehow people survived the early 80s (and subsequent market corrections) without 40 year mortgages and 95% refinances - I think we will be ok.

If you would like to chat about these mortgage changes, send us a message or email dylan@bridgecap.ca and we would be happy to help.

2011 could be promising

2010-12-24T12:26:00.000-07:00

If the past 6 months are any indication of the coming year it could be a good 2011. In our daily work we are busy helping people and businesses get the financing they want so they can do more. Over the past few months there seems to be some confidence in the market as it relates to stability. While no one has shared with us that they are expecting and significant increases in the coming year the consistent message seems to be that if 2010 was ok that 2011 will be the same if not slightly better.

Many people and businesses are being very careful about the financial borrowing decisions that they make and recently the government has been signalling that it concerned about personal debt levels and lack of economic growth. In our experience people and businesses do not want to lose the ground they have gained (or saved) over 2010 however going into 2011 it feels like people will begin to step outside of their comfort zone and take small risks in hopes of making some larger gains.

We hope wish you all the best for 2011 and look forwarding to helping you do more.

There are only so many times you can go back

2010-11-07T20:29:00.005-07:00

When considering their financing options our client tends to try their bank first only to end up frustrated and no further along. It's not their fault. Given the way banks are structured and the requirement for a central credit or underwriting department to approve a loan request an individual at the bank can only do so much. Recently we had a client come to our offices and for less than 3 hours of our time he was given the solutions, the criteria and the timelines for what financing was available for his purchase. He was a business owner looking to purchase a property and needed to know how much financing would be available for him. He also needed to know what the interest rates could be and whether or not his business could afford it. He has worked very hard to build his business and wanted the attention of someone who could help him with his decisions. In his words "it is like they just don't want to take the time to help" he explained why he was paying us to help him.

Since adding a fee based service to our brokerage offering we are finding serious clients are prepared to pay for serious advice. When it comes time to getting a specific financing request funded our performance based service adds value by making sure our clients get the financing that best matches what they are looking for.

If you are looking for some direction and advice regarding your financing, please email me at dylan@bridgecap.ca or visit www.bridgecap.ca/dylan

CBC News - Calgary - Website connects struggling Calgarians with help

2010-10-27T13:24:00.000-06:00

CBC News - Calgary - Website connects struggling Calgarians with help

Where do I start?

2010-10-03T14:28:00.001-06:00

It is not unusual for someone to contact us with the question: "Where do I start?" or "I need to know a few things about commercial mortgages". Commercial mortgages come in all different shapes and sizes and unlike residential mortgages, each transaction is approved on its own merits and the interest rate and fee for the approval will be different for each mortgage as well. This can be frustrating for commercial mortgage clients. Some of the questions we get include:

- how much down payment do I need?
- what documents will I need to give to the bank?
- how much income do I need to prove?
- can I get a pre-approval?
- I want to buy a property but don't know when to make the offer?
- what will the interest rate be?
- can fees be included in the mortgage?
- how long will it take?

To answer the questions above, someone has to look at what you have and provide you with direction so you know how to move forward. We have different services that assist clients with these challenges. We have a Bridge Capital MAP that will provide you with the basic outline of a commercial mortgage and what is required. If you have a deal you want to have someone review for you our Options Package might be your best option. For those borrowers that really don't want to pay a broker a commission but need help presenting their deal to a bank or lender we have a Discussion Document service that will structure your transaction and put it in a format that will allow banks and lenders to understand what you are looking for.

Brokers are important but sometimes you don't need a broker - you need information. Please visit www.bridgecap.ca to learn more about how we can help.

Paying out vendor financing

2010-09-16T08:48:00.001-06:00

Often borrowers will purchase a property and not have enough down payment or may not be able to qualify for a mortgage at the time of purchase. A vendor looking to sell a property may offer a mortgage to the purchaser to help them purchase the property. For example, a property is being sold by a vendor for $750,000 and the purchaser is not able to qualify for a mortgage from a bank or lender but has $250,000 as a down payment. The vendor may agree to sell the property to the purchaser, take the $250,000 down payment and then offer a 1 year mortgage of $500,000 to the purchaser. The purchaser would make monthly payments on the mortgage and would have 1 year to work with a bank or lender to refinance or payout the $500,000 mortgage placed on title by the vendor.

Recently we have seen some transactions where a client is now at the end of their mortgage term with a vendor and needs to seek replacement financing. Most clients will take a mortgage from a vendor because they cannot qualify with a bank or lender or because a bank or lender does not want to finance the property type. Land transactions completed in the past two (2) years often involve a vendor mortgage and we are seeing these transactions that now require replacement financing.

If you have a vendor mortgage or have questions about how vendor financing works for real estate, please do not hesitate to email dylan@bridgecap.ca or visit www.bridgecap.ca/dylan

CASE STUDY: Construction complete on an infill

2010-09-09T08:44:00.000-06:00

A small home builder approached us to replace the financing that he used to construct two infill properties that are now listed for sale. The construction mortgages were interest only
payments and open for repayment at anytime without penalty. The properties are going to be listed for sale and given the amount of equity the builder has in both properties we arranged no income qualifying 1 year open mortgages that will allow him to sell the properties and repay the replacement mortgages with no penalty. The interest rates on the replacement mortgages are very competitive and the fees were less than 1.0%.

Construction financing has been hard to find over the past several years however recently lenders are coming forward to offer construction financing to strong borrower who can demonstrate real equity and personal net worth. Once construction is completed, mortgages can now be put in place with a growing list of lenders who are comfortable lending to a certain percentage of value and loan size.

If you have a construction mortgage that you would like us to review, please email dylan@bridgecap.ca or visit www.bridgecap.ca/dylan

Calgary Herald - Bridge Financial shares its success

2010-08-26T07:14:00.000-06:00

When they reach a certain measure of success, many Calgary individuals and businesses become generous to the less-fortunate, something for which this city is noted. However, Dylan Gallagher made his commitment at the launch of his company and has been donating ever since it made a profit.

click here - Bridge Financial shares its success

Commercial borrowers frustrated by process

2010-08-24T11:23:00.000-06:00

Two calls in a row this week have come in from borrowers that feel very frustrated with the lack of service being given to them from other lenders and other brokers. It would appear that the amount of financing they are seeking is too small for a corporate banker to review and too large or complicated for a bank branch to review. One client advised that they had a residential mortgage broker looking to get them financing and they had been waiting 4 months for an answer.

As a borrower it is important to understand what it is you are looking for. The easiest place to start is to determine what the loan to value of your request is. For example, if you are purchasing a property for $150,000 you should have at least $52,500 available for a down payment (or 35%). Banks and lenders may not actually require that much as a down payment however when talking to a bank or broker you should let them know how much you have and how much you are looking for. Then proceed to ask them about the last few deals they did and how much down payment or equity the borrower had to have. If you are simply looking for answers or direction be very specific about what you need.

Banks and brokers will tend to look at a deal and keep asking for paperwork until they know they have a deal. This happens because financing requests can be structured in a variety of ways to get the borrower what they need. Unfortunately banks and brokers don't always get the right information upfront and it can be very frustrating as a borrower to wait while they figure it out. Don't despair - just put time frames around your request so that you can move on to the next person if your needs are not met.

If you have a transaction you would like some direction on, please do not hesitate to email dylan@bridgecap.ca or visit www.bridgecap.ca/dylan

Land financing back in play

2010-08-11T14:38:00.000-06:00

It would appear that with the limited amount of lending opportunities available in the marketplace that private lenders have been prepared to reconsider their policies for providing mortgages on parcels of land and future development sites. For the past few years it was difficult or nearly impossible to obtain financing for land as most lenders chose to finance income producing real estate that generated the required cash flow to service a mortgage payment. Recently we have seen private lenders being selective about the land deals they finance by limiting the amount they lend (typically less than 50% of what a property is worth) and ensuring the location of the property is strong. With market values having stabilized a private lender can put out their capital with limited exposure and feel confident that they will be able to earn their required return even if they need to foreclose and take a property back. At conservative loan to value levels the chance of them losing their principal and interest is relatively low. While there is still a lot of land in the market that is over financed opportunities still exist for developers (and investment groups) that have not over leveraged their land to now consider developing out and bringing new supply to market.

If you have a land deal you would like to discuss, please email dylan@bridgecap.ca or visit www.bridgecap.ca/dylan

Loan to value versus loan to cost

2010-08-06T14:05:00.000-06:00

Quite often we will have a client ask us to help them finance a property that they have been able to purchase for an amount that is less than what the property is worth based on an appraisal. When banks and lenders provide a mortgage to a borrower who is purchasing a property they typically will do so based on the lower of purchase price and value. For example, if a borrower is purchasing a property for $100,000 but has an appraisal showing that it is worth $150,000 a bank or lender will give them a mortgage based on the $100,000 price NOT the $150,000 appraised value. Why? In this example if a 90% mortgage was given to the borrower based on the value, the lender would be giving the borrower $135,000 ($150,000 X 90%). That means a borrower would pocket $35,000 and the mortgage would arguably be more than what the property is worth. Lots of opportunity for mortgage fraud to be committed and banks would be stuck with properties that they cannot sell to recover the mortgage amount. If you would like to ask us about your deal, please email dylan@bridgecap.ca or visit www.bridgecap.ca/dylan

New business needs capital

2010-08-03T18:51:00.000-06:00

Need: mortgage to purchase a commercial property
Challenge: no financial statements to show business history

To obtain financing for the purchase of a real estate property, most banks want to see that the company can make the monthly mortgage payments. The math formula used by lenders to determine how much to lend a company is based on a range of $1.10 to $1.25 of income for every $1.00 of debt. The bank wants to know that there is more than enough income available to ensure the mortgage payments are made. A two year (or more) average will be used by examining the financial statements of the business to get an idea of what the business can afford. New businesses who do not have the financial history need to present their transaction in a different way to the bank. Using a mortgage broker who understands the market and the requirement of the banks can help your business structure its transaction. A good broker will help you present your application to a bank to address all of their concerns - even if you are a new business. If you would like to speak with us about your deal, email dylan@bridgecap.ca or visit www.bridgecap.ca/dylan.

Construction projects and creative financing

2010-07-27T12:42:00.000-06:00

For a second time this month we provided some guidance for construction projects that are multi-phased and require creativity. Most lenders today do not want to provide construction financing for projects that are not completely pre-sold. Lenders want to know that the money they put out is covered off by sales that can repay the loan. The challenge for borrowers is that in order to pre-sell a project prior to construction the sale price ends up being less than what they want and is not as profitable as selling after the project is completed (or started). Borrower's today believe that if they build first and sell later that they will maximize their profit. Lender's today want them to sell first and build later resulting in potentially less profit. The creativity is required to find a point in a project where a borrower is satisfied that they can move forward without compromising profit and and lender is satisfied that they are not going to be short on equity once the project is built.

If you have questions about your construction financing or construction mortgage need, please email dylan@bridgecap.ca or visit www.bridgecap.ca/dylan

How do residential mortgage brokers get paid?

2010-07-26T08:52:00.000-06:00

We get asked this question a lot so I thought it would be a good idea to share the answer with everyone. For residential mortgages typically brokers are paid by banks and lenders. The longer the term you choose the more money a broker earns. A one year mortgage might pay a broker up to 0.50% of the financing amount whereas a five year mortgage might pay a broker as much as 1.10% of the financing amount. Not every bank pays the same amount and some pay more than others. As well, most banks and lenders will allow a mortgage broker to use a portion of their commission in exchange for providing a client with a lower rate (called a buy-down). Some banks allow brokers to earn points towards vacations, office equipment and other non-cash rewards. As a borrower it is important to know how your mortgage broker is compensated to ensure that you are getting the mortgage that best matches your needs. It is a very competitive marketplace with many brokers competing for your business so don't be scared to ask how your broker is getting paid.

On a side note, private mortgages do not follow the same compensation formula and can vary widely from broker to broker. For private mortgages the lender will charge a fee and a broker will either charge a separate fee or share in the lender fee. These fees can be as low as 1.0% of the financing amount and have no limit.

If you have questions about your mortgage or how your broker is being compensated, please email dylan@bridgecap.ca or visit www.bridgecap.ca/dylan

CASE STUDY: Business turns a corner and needs more cash

2010-07-20T14:18:00.000-06:00

A business approached us that has just come out of two years of very difficult times but seems to have turned a corner for the better. Going into 2008 they had plenty of capital and then used that capital to pay expenses for 2008 and most of 2009. Near the end of 2009 business began to pick up and it appears that they know have over 6 months of strong cash flow and future business prospects. They own their building and have a mortgage that is less than 60% of what the property is worth. Because of the way in which their financial statements present 2008 and 2009, the bank that holds the mortgage has become very difficult to deal with and they are looking for us to help them payout the mortgage and get them a new one. At the same time, one of the principals of the business is looking to have money he put into the business paid out which would be added to the new mortgage amount.

If you would like some feedback or comments on your situation, please email dylan@bridgecap.ca or visit www.bridgecap.ca/dylan

CASE STUDY: A Church and a Vendor Mortgage

2010-07-19T09:25:00.000-06:00

Recently we were approached by a church (not for profit organization) that purchased a small commercial property but at the time did not have the financial history to approve for a conventional commercial mortgage. As a result, they gave their down payment to the vendor and the vendor agreed to give them a mortgage at a slightly higher interest for three years. They felt at the time that leasing space would be more expensive than owning space and making a mortgage payment so they completed their transaction with the vendor. They now have approached us through their commercial real estate agent looking to payout the mortgage provided by the Vendor given the current interest rate environment. With their financial statements up to date we will be working to get them a new mortgage at lower interest rates and help them own their space at a lesser cost than what they have paid previously. Their financial statements prove that they have made the payments historically at a higher interest rate which helps a bank feel comfortable that at a lower interest rate they would be able to make the new mortgage payments easily. If you would like us to provide you with some options, please email dylan@bridgecap.ca or visit www.bridgecap.ca/dylan