30 May WSJ Confirms Private Lending’s Continued Growth
According to the Wall Street Journal (https://www.wsj.com/articles/main-street-banks-new-lending-rivals-hedge-funds-and-private-equity-1526734800), as business are continuing to move away from traditional bank financing in favor of alternative capital sources provided by private lenders. REITs, hedge funds, private equity firms, and other alternative lenders are taking material market share away from the banking sector.
How is it that smaller organizations can compete with large regional and nationwide lenders? One need look no further than the typical experience when applying for a bank loan. Solvent borrowers with ample collateral are dragged through months and months of underwriting with hours upon hours of back and forth correspondence only to be denied proceeds due to what often amount to technicalities. What many borrowers are learning is that banks are required to comply with a number of lending regulations that have very little to do with the viability of the business seeking a loan. While a bank can take months to reach a decision, a private lender, unencumbered by regulation, can assess the business, underwrite collateral, and fund loans in a matter of days.
Furthermore, banks often require loans to conform to pre-determined criteria that make creative lending solutions impossible. Private lenders are able to structure loans to account for the idiosyncrasies of their borrowers. A borrower’s ability to have payment terms that reflect underlying business fundamentals is a benefit of working with private lenders that no bank can offer.
Finally, perhaps the biggest obstacles facing banks are related to their legacy cost structures and lending platform. How often does a borrower work out the terms of a loan with a lending agent only to have an underwriting department alter the agreement based on technicalities? How often does a borrower call their bank only to be fed through a call center before the vague possibility he or she reaches a decision maker? These redundancies are all but eliminated amongst private lenders. They understand that borrowers are focused on their business, not the minutia of the financing. Direct private lenders in particular offer the advantage of bypassing any final approval by a credit committee unfamiliar with the deal.
Perhaps the most important takeaway from the Wall Street Journal article is just how common private lenders are becoming as an alternative capital source for businesses. If you or your business have ever considered having a conversation with a private lender but decided against it due to a lack of familiarity with the process, you can rest easy that this sector is growing and becoming more and more common amongst Main Street businesses.
Worth Avenue Capital, LLC has been in the private lending business since 2008. The company has a track record of working with borrowers across the Northeast and Florida, and it has succeeded in creating alternative lending products that allowed many small to medium-sized business and real estate investors/developers grow their businesses. As private lending becomes more and more common, you should aim to work with an experienced direct private lender capable of assessing your situation and funding your loan in days rather than months. If you would like a consultation on your borrowing needs, please contact us worthavenuecapital@gmail.com or 203-605-4082.