Hard Money Bankers - Inside The Mind Of Your Lender - The 4 C's
I wanted to give you a peak behind the curtain into what an underwriter is looking at when evaluating your deal that you trying to get funding for. There are 4 basic categories that begin with a 'C'. These 4 areas govern the big picture of what the underwriter wants to know about you and your project. You will want to make sure you present yourself and your deal in the best light possible and know what the other side is looking at when attempting to connect with you on a deal.
The first 'C' is collateral. This is the project itself. In hard money lending, this is the majority of the weighting. You can't proceed to the other 3 'C's if this one falls out. The underwriter is looking to see that the deal you are presenting is in fact a deal. How well did you do your due diligence, are your numbers right and most importantly do you have the project sale price at the right number. If this is is not in line, the buck stops right here.
The second 'C' is character. Character is as exactly as it sounds. A good underwriter is evaluating the person they are dealing with. At HMB we meet in person with every borrower that we are closing for. We like to know who we are dealing with and what the person is about. Just like any other kind of business an underwriter wants to do business with people they like and borrowers like to work with underwriters they like. Character goes a long way.
The third 'C' is cash. This is very straight forward. The underwriter is looking to see that you have the ability to have skin in the game. It is also important to know that if there is a bump in the project that the borrower has the funds to smooth it out. Running out of money is something that just can't happen so make sure you have reserves and some liquidity available. Find a minority cash partner if needed.
The fourth 'C' is credit. This one was listed last because it doesn't hold as much weight as most people think. People are programmed by the banks to think that credit is everything. Banks don't know local markets or put any real weight on the other 'C's. Credit certainly has its place, but many times, bad credit can easily be solved by adding a minority partner with strong credit or more cash at closing.
Hopefully you have learned a bit about what an underwriter is looking for when you bring them a deal. These are very important areas to have in order when trying to get funding on your projects. One area can be offset by another, but make sure you are prepared with a potential solution if you fall a bit short.
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