19 Replies

Has anybody ever heard of getting a loan or line of credit against the cash flow of a performing note. I know @Dave Van Horn once mentioned this as a way he grew his business but not much detail went into how. I would love to hear others ideas on how to this works and who are the right people to reach out to. Thanks for your time and answers.

technically that's called a hypothecation... you pledge the asset to the bank and they give you a loan against the collateral I have done it many times. its an advanced strategy and takes a good relationship with a commercial bank that understands your business and your financial situation very well... usually you will get 50% advance.. they will want current 3P appraisal etc ..

other than that you would need to try to talk private investors into it...

Have you considered selling a partial of the note ?

Thanks @Jay Hinrichs  who at a bank should I speak with. Will the commercial lender do or should I speak with someone who deals with special assets department.

George you will want to speak with your private banker.. this is not an off the street strategy.

this is something you do with your commercial banker that you have an existing relationship as this is for them a value add to you the very good client that does a lot of business with the bank and has very hefty deposit relationship..   so if you have that kind of relationship then that's who you talk to .

if not and your new to the bank I would start with a small commercial bank in your direct neighborhood open your accounts.. put substantial cash into those accounts.. then I would make an appointment with one of the banker/lenders in the bank and create a relationship with that banker.. fill him or her in on your full business endeveours  bring in last 2 years of your tax returns .. let them run credit and back ground check.. at that point you can broach this advanced request.

Yeah I figured thats what I would need. @Jay Hinrichs, I figured I might need to go through a private lender first till I can build a relationship with a banker.

I have done  this (loaned against a mortgage) with a broker I've worked with for some time. I made sure an attorney did the assignment and it was recorded. Most banks wouldn't go the extra mile. Sorry, but haven't found banks to be particularly imaginative. 

@Gary Headrick   there ya go maybe you can give the OP the name of your broker and it will get done.

its not that banks are not imaginative  after all they are pretty up to speed on most debt obligations and how to use them.. its just if they can make money with the process or not... But if you can find a bank to do that you get bank rates and not private investor rates.. Big difference in cost of course.

@George Frye

As Jay said, this is workable. A local just did a loan against his note. He borrowed about 30% at HML rates. Selling partials is completely different and may be more difficult. Ask @Dion DePaoli for input. 

@John Thedford I agree that selling partials is different and can be more difficult unless your servicer and attorney know what they are doing. Who did the local do a loan with. 

I was approached about the loan but didn't feel I knew enough at the time to pursue it. Another friend of mine found someone to do the deal. 

so they got 30% of value or 30% of Principle Balance

here's another name that may be useful "Accounts Receivable Loan".  Usually associated with retail business, but you might crack open the door with it.

George a proper note buyer is going to base the deal on their opinion of value not the unpaid balance

@John Thedford   depending on the note buyer.. its usually unpaid balance or value which ever is less.  at least that's how I have always done it.

There are lenders out there who will do it along with private investors.  Terms will vary depending on entity providing funds.  Local banks will likely shy away from loans that are not local.  

Factoring AR is not the same as taking a loan as collateral.  The amount of time it takes for the capital to be returned is shorter in factoring and longer in loans in general.

@Dion do you know of some lenders you can recommend

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.