How to Save Your Earnest $$ When the Bank Quits With 10 Days to Go

You have done everything you can to prepare for a new real estate acquisition. As an investor, you have done your due diligence. The appraisal is done, and your agent just sent you the settlement statement. Your acquisition is just 10 days away. But then the unthinkable happens: your bank quits.

That phone call from your loan officer telling you the bank has changed its mind brings everything to a grinding halt. Backing out of the loan essentially pulls the rug out from under your feet. So what do you do? This is not merely about losing a property. It is about losing an opportunity to grow your portfolio. And of course, you risk losing your earnest money if you don’t make closing on time.

Enter hard money. It is the private lending solution that so many real estate investors rely on to get deals done. It could be a lifeline in your case. Getting to close on time could even convince you to use hard money for every future deal.

Why Traditional Lenders Pull Out

Actium Lending is a hard money and bridge loan provider active in Utah, Colorado, and Idaho. The firm is based in Salt Lake City. They say that banks pulling out at the last minute isn’t uncommon in commercial real estate. In fact, they once helped a client whose bank backed out on a Friday morning with closing set for the following Monday.

Actium was able to save the day – and the deal – with a lightning-fast loan. That’s all well and good, but it doesn’t explain why banks back out at the last minute. Actium offers three possibilities:

• Shifting Risk – A news headline or regulatory memo can instantly change a traditional lenders risk exposure. When risk parameters change, so does lending appetite. Property that met yesterday’s criteria suddenly becomes too risky today.

• Allocation Limits – Traditional lenders tend to have hard caps on how much they will lend in certain sectors. So if a limit is reached before closing, a pending deal can be shut out.

• Banking Bureaucracy – Unfortunately, traditional banking is rife with bureaucracy. A typical loan application goes through multiple layers. It can even be subject to committee consideration. Along the way, anyone involved in the decision-making process can get cold feet.

Traditional financing is fine when a buyer has 60-90 days to wait and is willing to work his way through red tape. But that’s not how things work in the property investment market. Investment properties move extremely quickly. And unfortunately, traditional lending just doesn’t move at that speed.

Private Money Saves the Day

Where traditional financing is slow and cumbersome, private lending is speedy and efficient. Hard money lenders are like the SWAT teams of the funding world. They are known for rapid asset evaluation, limited documentation requirements, streamlined underwriting, and fast fund transfers.

How quickly can private lenders work? Let’s go back to the previous example of the Actium Lending client whose bank backed out on a Friday morning. Actium was able to complete its appraisal that afternoon. Office staff were already preparing loan documents while the property was being appraised.

With the appraiser’s approval, they moved ahead on the loan. Documents were completed, then forwarded with the funding to the appropriate title agency on Monday morning. Closing went off as scheduled, saving both the deal and the investor’s earnest money.

When traditional banks quit at the last minute, hard money saves the day. Hard money is such an effective financing tool that it’s a wonder investors don’t always make it their first choice.