All real estate investors seek reliable, high yield returns. No surprise there. Yet, more often than not, that ideal combination of consistency and optimized returns prove to be frustratingly elusive. Optimal deal economics oftentimes are driven in large part by the pricing, efficiency, and certainty provided by debt capital. That’s where relying on an established direct lender comes into play.
The Ins and Outs of Direct Lending
Direct lenders are unique because they both 1) tap their own capital resources to fund loans and 2) source their own leads/clients in house. Direct lenders utilize the funds raised from either investors or a line of credit to entirely finance a loan as opposed to syndicating it out to the conventional loan marketplace. This type of lending offers investors the opportunity to lock in quicker but still reasonably priced debt by eliminating intermediaries like banks and to capitalize on emerging, time-sensitive opportunities in what has become an ultra-competitive local Bay Area market.
Recently, the collective scope of the private debt market—of which direct lenders comprise a significant amount—has expanded exponentially. A study conducted by the Bank of America indicated that the private debt market has doubled over the past decade and is in excess of $700 billion in transactional activity. Because banks are extremely selective regarding what entities, individuals and projects they are willing to lend capital to, direct lending fills a pivotal void in the financial industry by providing financing to those who would otherwise be unable to access funds.
Borrower Advantages of Using a Direct Lender
Direct lenders like Security Financial Services offer several distinct advantages over conventional banks and classic hard money lenders:
• Overall speed & efficiency vs banks:
◦ In today’s increasingly competitive real estate market, time is of the essence to savvy investors looking to pounce on deals with a promising return on investment—especially when inventory is low, and demand is high. Conventional lenders take weeks to months on end to approve loans and disburse funds; also, some direct lenders will need to raise capital from outside investors to fund a deal, which is simply not acceptable for the modern-day real estate investor looking to be competitive.
◦ Security Financial Services has access to a syndicated line of credit which has been in place for decades and ensures quick fundings. For borrowers who have an immediate close or escrow or have a hard to finance property, we can close in as little as 3-5 business days. Our familiarity with the Bay Area market, flexibility and streamlined application and approval processes enables us to accommodate short deadlines and to provide certainty of closing.
• More attractive pricing & flexible terms:
◦ Security Financial Services is neither an expensive hard-money lender nor a unresponsive conventional lender. Thanks to our affordable lines of credit, we consistently are able to offer the lowest rates—starting from 5.95%. Because we are a direct lender, meaning we don’t have to consult with external investors to approve deals, and handle everything in-house, we are able to offer flexible terms and customized lending solutions to fit every need.
• State regulatory compliance & reputation:
◦ There’s a perception that private money lending is not regulated. While compliance isn’t as onerous as for conventional lenders, legitimate direct private lenders are required to be licensed. Security Financial Services was founded in the early 1940s and has originated business purpose real estate loans in California under a CFL license for decades. We undergo rigorous audits performed annually by the California Department of Financial Protection and Innovation (DFPI). We also pride ourselves on our reputation for professionalism that we’ve established for ourselves amongst Bay Area borrowers and brokers. When considering a direct lender, be sure to consider both the status of licensing and their reputation.
Contact us today to learn more about how we can help you achieve your real estate investment objectives without the hassle and expense of dealing with conventional lenders!