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Commercial Lenders - Introduction

When thinking about commercial lenders the first thing that comes to one’s mind is a bank that provides business loans, or maybe even the federal government and the Small Business Administration.  For those who’ve been in business and been more exposed to the ins and outs of business credit, one’s opinion might be more refined and think of large-scale development projects and the financiers who arrange the funding to support such ventures.  Whatever the case, commercial lenders definitely have a strong position in the viability and success of large project, and whether they even get off the ground or not.  Commercial lenders also have the ability to pull the plug on projects midstream, especially if they feel their exposure risk outweighs expected profits.  More interesting is the not-so-known fact that commercial lenders are far less regulated than the regular banking and lending many people are familiar with, which poses its own problems and concerns as well.

First and foremost, commercial lending involves big money.  It is not an area for Sam’s sandwich shop to get a loan for a new oven.  It is an industry focused more on entire factory fabrication, bridge loans to carry companies through in short-term time windows, financing entire buildings and complexes for industrial parks, and so on. 



The recent explosion of building and construction in Dubai, a country bordering Saudi Arabia in the Middle East, is a very good example of the fruits of commercial lending.  Without that financing arm, none of Dubai’s gleaming towers and its ocean oasis in what is essentially a desert would exist today.
commercial loan
In the United States specifically, the term “commercial lender” applies to a financial lender that is in the business of providing loans supported by what is called “hard collateral.”  Hard collateral generally tends to involve real property (i.e. real estate, land).  However, it’s not uncommon for there to be circumstances involving other collateral including the trade of revenue streams (i.e. trading account receivables for 50 cents on the dollar in return for up front cash), non-conforming assets, or some other guarantee of value.  

The types of businesses that dominate the commercial lending industry include banks, mutual companies, private lenders, and very rich private lenders who lend against the value of an involved property.  The last group is unique since they are probably the least regulated of all lending industry players.  Hard money lenders very frequently have different lending standards or criteria from each other and institutions that must be met and on which they determine good or bad loan prospects.  However, these lenders tend to pay attention mainly to the private market side (i.e. private party to private party) and usually have less restrictive terms compared to traditional institutions like banks.

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