The Joys Of Working With Lenders In Today's Environment

We are currently working on getting some new credit lines to fund some east Austin development deals and it never ceases to amaze me how creative bankers can be with inventing ways to avoid lending.  You would think they would be eager to lend in exchange for charging a bit higher interest rate.  In fact, I can see a huge need for lending in the void between prime plus rates at a few percent and private-money-type rates north of 10%.  

Bankers seem to have little or no creativity or tolerance for risk though.  I guess the way they are regulated may drive this herd mentality, but it flies in the face of what is practical and prudent.  A bank can maximize value for its shareholders by making quality loans to people with many years of experience and nice liquidity in trade for modestly higher rates.  Instead most banks blanket deny construction financing right now because there is "no appetite" for that type of financing.  The order takers at the front office sure will want to get your application and your deposits though!  

I was experienced enough to set the preconditions to my last bank engagement so that I can send feedback about how the file was underwritten to my accountant.  When we got the feedback and poured through the data it was most amusing!  The bank counted ALL of our property debt, none of our revenue (yeah...you're reading that correctly :-)) from the property, and assumed 50% of our income was consumed by living expenses.  I guess you can make the file say anything you want to with assumptions like that!  

Fortunately there are alternatives like partnering with others and raising money via a fund.  My annual game with conventional lenders is always most entertaining.  Thanks for reading!