The Tech Revolution Has Arrived For Alternative Lending
As more developers look beyond banks and other financial institutions to fill the gaps in their capital stacks, nonbank lenders are offering a new source of financing. Unlike traditional lenders that are highly regulated and constrained by recent rule changes, alternative lending has grown in popularity as accredited investors enter the market, capitalizing on demand and a lack of traditional capital.
The growth of alternative sources of capital has opened a door for online and marketplace lenders, combining the availability and flexibility of capital with speed and transparency.
“Upward of $100B in loans are coming due and there is a gap,” Money360 President Gary Bechtel said. "The banks, life insurance companies, agency lenders, can only provide so much capital, and this is the void that nonbank lenders like Money360 are filling. And many of these firms have a technology component to them.”
Online and marketplace lenders raise capital through their platforms and other sources, providing liquidity to a somewhat illiquid market, Bechtel said. Nonbank lenders act like traditional lending sources, underwriting, funding and servicing the loans.
Marketplace lending has become a popular alternative for student loans, credit card and small-business debt, but the commercial real estate industry has yet to fully participate. For Bechtel, it is a missed opportunity.
“Borrowers are focused on where the money will be coming from to finance their products, because the traditional lenders they may have utilized in the past either are constrained by regulations, or the asset classes they used to finance are now out of favor,” he said.
Money360 lifts those constraints. Because it does not have the same balance sheet requirements and regulations as traditional lenders, borrowers seeking financing for any asset class can apply for a loan on the platform. The platform offers loans between $1M and $20M on both bridge and permanent loans, with competitive terms and features similar to traditional lenders. Bridge loans are interest-only, and like banks, permanent loans utilize 25- to 30-year amortization schedules.
Unlike a traditional lender, borrowers on Money360 can apply for a loan in under 10 minutes. After requesting a loan, borrowers receive a pricing estimate within 24 to 48 hours and a letter of intent within two to three days. Money360 stays on as a partner from letter of intent to loan maturity.
Keeping the process online helps streamline the system for borrowers. The marketplace lending platform also provides accredited investors direct access to fixed income investments secured with a first-priority lien against income-producing commercial real estate.
“We utilize technology heavily in almost every aspect of our company,” Bechtel said. “Whether that is from the way we market and source transactions, to the way that we underwrite and process and service the loans."
Money360 also uses technology to offer loans already funded through its marketplace to accredited investors who want to buy either a whole loan or in funds offered through its subsidiary, M360 Advisors, in a loan that has already closed.
Online and marketplace lenders speed up the process by eliminating the repetition and inefficiencies that occur throughout the processing of a loan. The technology allows for better consistency of reporting standards, loan origination data and portfolio performance, which leads to better decision-making by the platform and its investors. Consistent and transparent data also helps borrowers determine the best option among traditional and nonbank lenders.
Loans can close without having to drive to an office for a face-to-face meeting. The online process is not only fast, but also secure.
“When a traditional lender sells a loan to another bank, they are either going to send it via email, which is not secure, or they will set up a war room for clients to review the loan,” Bechtel said. “From the time we start processing a loan, everything is housed in an electronic, secure environment, where we decide who can come in, what they are permitted to review and when it was reviewed.”
Open access to data and the growing alternative lending space will continue to grow the online and marketplace lending business, as transparency, speed and efficiency build a foundation for successful transactions.
“The technology, in conjunction with the ability to raise capital and fund loans, is the way of the future, allowing us to continue to be a reliable source of capital to brokers and their borrower clients,” Bechtel said.
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