Unconventional Financing in Unconventional Times

By Stephan Teak

Play by the rules in financing and you can often get a lot done through the concept of leveraging. Well, at least you could. The rule book for financing has been shredded and thrown in the trash over the past year.

The banking system is the backbone of the financial industry. Much like the spine in our bodies, when it starts having problems, the entire world of finance begins to suffer. If things go really bad like they are at the moment, the world of finance can come crashing down.

Although Ben Bernanke deserves a load of credit for trying to minimize the effects of the current financial crisis, there is no doubt that it is in fact a major crisis. Major banks have gone down the tubes and many more are living on the edge. The government has responded by effectively recapitalizing those banks, but the solution really isn't helping because of a very predictable thing. The banks are not loaning. Critics of the $700 billion dollar bailout suggested as much would occur.

So, what can you do if you desperately need financing these days? In unconventional times, this means looking to unconventional financing sources. This includes everything from factoring invoices to seeking out hard money and bridge loans to ride out the crisis for the next year or so.

The alternative financial options are not excessively impacted by the current problems in the financial market. Why? The source of the money is not the financing system. Instead, these companies are funded by private money, to wit, wealthy investors who see the current market as one filled with opportunities.

The downside to this type of financing is it is always going to be more expensive than traditional financing. You are going to pay more in points. You are going to pay higher interest rates. Before you jump into one of these financing options, you need to carefully run the numbers to make sure the deal makes sense.

It is vital that you understand the reason for using unconventional financing. It is not to fund your project. The long term costs are simply much too high. The real goal of this financing is to buy time until the credit markets settle down and you can get traditional financing that will cost you less.

The financial markets are definitely bruised and battered. Predictably, they have become adverse to risk, even good risks. If this is putting you in a tight spot, make sure to consider the unconventional financing options available during this unconventional time.

Stephen Teak is with CommercialLoanStop.com - your resource for commercial hard money loans for simple and complex projects alike.