2012 ... The Tipping Point for Alternative Lending?

I don't know what happened, but starting last Thursday, my phone practically exploded. People who are used being able to get a hold of me were starting to send me irritated emails saying that my voicemail box was full. What happened?

For sure, the holidays are over; but what I think has really happened, is that the alternative financing market has reached a measure of maturity. In 2011, businesses who stepped out of the realm of the traditional bank actually closed some loans with alternative lenders, and were actually able to finance something. They told some of their business associates, and those borrowers were in turn, able to finance something, too. Somewhere along the way, a tipping point was reached.

I should say that the word "alternative" doesn't have to mean "non-bank". In fact I would have to say that a very significant percentage of the loans we arranged in 2011, in fact did have a bank behind them. The "alternative" part in those cases may have more to do with how the loan was achieved, than who made it. Meaning, instead of calling their banker, (or perhaps because they started there) they called a broker, like me. You see, I know what banks are interested in doing what. Or if I don't,I know a broker that does. And us brokers cooperate to 'get er done'.

Case in point: A broker called us last July with a client in western Wisconsin who owned a nice strip mall. It was not performing due to the economy, but it would be performing if the loan were to be reduced by a million bucks. The bank had already told the borrower what it would take to go away, and so we went to work. We worked with a good broker friend of ours out of Virginia, who forwarded the request to yet another broker, this time in New York, who had a bank in their network with an apetite for the deal.

Instead of piling on fees and fees and fees (which is truly what brokers get a bad name for), we all agreed to split the fee that the client originally agreed to at the beginning. The last broker in the chain ran point, and the request was funded first by an interest only bridge loan (so the new bank could purchase the note)and just yesterday, the bridge was exited by a long term note in the 7 percent range. Which isn't the lowest interest rate, but which is still pretty awesome considering the borrower just saved his building and a million bucks. Client his happy, Bank is happy, and all 4 brokers were happy - if we hadn't known each other and cooperated - the deal never would have happened.

The other thing that has changed, is that the very few private lenders who were out there, who do make up the other significant percentage of what we arranged last year, are very happy with their investments. In turn, they have told their friends, and people started looking at their CDs and their money markets and even their 401Ks with new eyes. We've been at this for five years now, and most of our investors only make 1 to 2 year loans, so we have investors who have funded multiple loans for us and our local business borrowers. Our Investors averaged 12% on their money last year.

Now the first thing a financial advisor would do when they read that line is whistle and say "you can't write that!!!" But I can say this, and I can write this, because I don't sell investments! What I can do is give you options with what to do with your money. Read up on "self directed IRAs". Google places like Guidant or Pensco. I tell you what, people can and do decide every day what makes a loan sensible. Perple are capable of determining what is risky and what is not. My favorite line is this: Don't you feel better about being able to drive by your investment and to see it, instead of sending your money to some "money manager" suit in a far away city? How well is your money manager doing?

So I am looking forward to a really great year. Banks do have some money now and they are beginning to lend again. More and more private investors are getting into the market. Capital is being freed up again, in response to the demand for financing. Supply and Demand, its the American way, is it not?