In a perfect world, every strong CRE deal would qualify for low-cost capital.
But financing a commercial property is rarely as simple as walking into a bank and walking out with a loan.
Traditional lenders take months to scrutinize every detail, from your credit score to your income history, all the way to your debt ratios and tax returns. And if you don’t fit their box, the deal might fall through.
Private mortgage lenders can give you fast capital to move on opportunities that banks would turn down flat. They cut through the red tape and get you funded while the window of opportunity is still open.
Why do CRE mortgage loan private lenders move fast?
Because they’re focused on the collateral (the building you want to buy) and not your credit report.
But of course, speed and flexibility come at a price, so terms are shorter and private mortgage lenders’ rates are often (though not always) higher than traditional bank loans.
Should you turn to private lenders for commercial mortgages?
That really depends on your timeline and your risk tolerance. Before you commit, let’s talk about how private mortgage lenders work, who uses these loans, and when these financing solutions actually make sense.
What is a private commercial property loan?
A private commercial property loan is a loan backed by the property and funded outside the banking system.
Instead of going through a bank or credit union, you borrow from a private investor (or a group of investors), or from a specialty finance company.
The mechanics are the same as a regular commercial property loan: the lender advances you the capital, you pay it back with interest, and the property secures the debt. If you default, they can foreclose.
The difference is in how approval works. Private lenders (especially private mortgage lenders for bad credit) rely less on your tax returns or credit score and more on the property itself — especially, what it’s worth today and what it could be worth tomorrow.
How do private mortgage lenders work?
Most private commercial mortgage lenders know the ins and outs of CRE deals. They can see how a property’s value changes through repositioning or redevelopment.
They understand that cash flow today might not always reflect long-term potential, and that future demand might not always be obvious from current occupancy.
This means that they often approve financing for deals banks won’t touch, such as renovations, mixed-use projects, or transitional assets, but it also means that the property has to hold enough value to make the risk worthwhile for them.
When does it make sense to use a private commercial mortgage?
- Maybe your credit score isn’t where it should be, or your income doesn’t fit their formulas. If the property has strong fundamentals, a private lender may agree to back you.
- Are you up against the clock? If you’ve got a deal that can’t wait several months (which is how long it takes for banks to approve a loan), try private mortgage lenders. They can close in days, so you don’t lose the property to someone else.
- Maybe your property doesn’t fit the conventional mold because it needs renovations or doesn’t have a stable cash flow. CRE mortgage loan private lenders are often more open to funding these deals.
- Do you need to cover a balloon payment coming due? Private financing can step in when traditional loans won’t come through in time.
Who are private mortgage lenders?
Private mortgage lenders in commercial real estate are individuals, investment firms, or pooled funds that provide capital outside the banking system.
They look at the property itself instead of running your deal through a rigid checklist of tax returns, credit scores, and income ratios.
In their eyes, the building’s value and location, combined with the prevailing market conditions and your exit strategy, matter more than your credit file.
Because they’re not bound by federal banking regulations, private lenders for commercial mortgages move much faster than traditional institutions.
They can approve and fund in weeks instead of months. The tradeoff is cost and risk: you’ll face higher interest rates, shorter loan terms, and more aggressive remedies if you default.
Private mortgage lenders vs. traditional banks
What are the pros of private mortgages in CRE?
- Banks can drag out underwriting for 2 to 3 months, but private mortgage lenders can close in a matter of days, so you don’t have to watch another investor take the deal you’ve worked so hard for.
- Renovations, mixed-use projects, or unconventional collateral that banks reject may get funded privately.
- The property does most of the talking. Lenders care about its upside potential and your plan for repayment. Private mortgage lenders for bad credit will consider your project even if can’t clear the bank’s credit score or income requirements.
- Are you up against a deadline, refinancing maturing debt, or pursuing a property that doesn’t fit the “bankable” box? Private lenders for commercial mortgages can keep your deal alive.
What are the cons of private mortgages in CRE?
- You’ll pay for the speed and flexibility. Rates run well above bank loans and origination fees can take a noticeable bite out of your proceeds.
- Private loans are rarely long-term. Many run from six months to three years and end with a balloon payment, so you need a clear refinancing or exit plan before signing.
- You won’t have the safeguards built into traditional loans, so you need to negotiate carefully and read every clause. The assumption is that you know what you’re doing.
- Private lenders don’t hesitate to act if you fall behind, so you risk losing the property quickly without an exit strategy.
How do you secure a private mortgage for a commercial property?
- Bring in a real estate attorney early. Private loan contracts are not standardized, so you need an attorney who understands commercial lending can draft or review the agreement and flag risky clauses if there are any. They can also confirm that the deal complies with state lending laws.
- Choose the right lender. You can private mortgage lenders through brokers and real estate investor networks, as well as specialty finance platforms. Ask how quickly they can close, how often they’ve funded deals like yours, and whether past borrowers recommend them.
- Negotiate every term — from the interest rate to the repayment schedule, as well as fees and balloon payment structures. Nothing is “standard” in private lending so don’t assume that the terms they offered you are what other borrowers receive. Ask about prepayment penalties and default remedies, and make sure you understand the lender’s timeline for foreclosure if things go wrong.
- Prepare your documentation. While private loans involve less paperwork than banks, you’ll still need to present a clear file to move quickly. At a minimum, be ready with:
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- A mortgage or deed of trust that secures the loan against the property
- A property appraisal or broker’s opinion of value
- Rent rolls, leases, or operating statements if the property produces income
- Bank statements or proof of funds showing you can cover payments
Are there alternatives to private commercial mortgages?
Private financing can solve urgent problems, but it’s expensive capital if you don’t choose the right lender.
Before you commit, explore whether another option might meet your needs at a lower cost:
- Equity partnerships or syndications: Instead of borrowing, you can bring in investors to share the risk and provide capital. This will dilute your ownership, but it also lets you avoid high debt costs and foreclosure risk if your cash flow tightens.
- Commercial bridge loans: Is speed your main concern? A bridge loan from an institutional lender can close nearly as quickly as a private loan. These loans cover short-term gaps (like refinancing maturing debt) without the steep costs of private financing.
- Portfolio loans: Some banks keep loans on their own books instead of selling them. These “portfolio” loans can be more flexible on underwriting than conventional commercial loans, while still providing longer terms and lower rates than private deals
CRE private mortgage lenders can be excellent business partners for time-sensitive acquisitions and transitional properties, as well as situations where conventional financing simply isn’t available. The key is to run the numbers and build a clear exit strategy.
Make sure that the loan terms support your long-term investment goals.
How to find private mortgage lenders?
Our team here at Private Capital Investors specializes in private direct lending for commercial real estate.
We work with investors and business owners who need fast approvals and flexible structures to meet their project timelines. We can help you move forward whether you’re refinancing, acquiring, or bridging to long-term financing.
Contact us to discuss your project.
