Wednesday, March 31, 2010

A Tale of Two Loans

After America’s financial hub-bub last year, we all heard that lending had all but stopped for businesses and was painfully slow for even small personal loans. It seemed to make sense. After any kind of major shockwave in life, regardless of source, it is human nature and good business savvy to pull up the drawbridge and rely on your moat for your defense. Luckily, the worst never happened. Yes more financial institutions dissolved than usual and some of the shakier banks and lenders had to shore up their reserves ala the government bailout. For the most part however, everyone came out on the other side, a little more wary and hopefully a little wiser, but most of all - we survived!

Fast forward to my present day situation. Since financial trends still remain difficult to predict and we had some higher than market interest loans, we decided to consolidate two real property loans under a single lender umbrella. Our goal was essentially to have the same debt load and save with some minor tax advantages. Also, a much lower interest rate would be easier to pay off even more quickly down the road. It is a change of strategy for us and counter to much of my life’s training and experience to rapidly build long-term wealth.

See, it was not long ago that I would professionally advise clients to conserve cash at all costs and to do so they should load up on as much secondary lending as possible. At the time, as long as your history was clean, you could parlay a small amount of cash into a truckload of credit. I also have better than a decade of experience in packaging real estate investment loans for conventional lenders; so I know the game and the numbers required to close a loan and make money for the banks, the borrowers, and ME! We personally have led a moderate life and have avoided extremes, so I was confident that for such a conservative package of lending, we comfortably had the credit, reserves, and the history to pull it off.

Don’t worry, this tale will in all probability end in success. The point has never been the loans but the speed of the entire transaction itself. In the golden days, I have personally closed more complicated deals in less than 3 weeks and one with a private lender in an amazing 7 days. This current transaction was originally on track to close in under a month – very quick, even by the old standards. But curiously now, we will be lucky to sign on the dotted line in anything less than 8 or 9 weeks – half the original pace. Commitments are made; the paperwork is done; I cannot explain the delay – it’s just eerie silence.

So while we all indeed survived the financial crunch, it is clear that things are far from normal. I can assure you if my relatively small and highly secure personal financial package is mired in molasses, then I cannot imagine what small business lending is like? For small firms and medium sized businesses to break out of the doldrums they need credit NOW not tomorrow, to buy new machinery, raw goods, and finance payrolls. It is wonderful that we are all a tad more wary, but to move America’s economic engine, we need vision and innovation. To get there, our qualified businesses and borrowers need that credit drawbridge lowered, locked and ready to lend. Only then can we get past that dark and scary moat overflowing with unemployment, economic stagnation, and those oh-so-ugly financial alligators.

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