Real Estate Investors and Developers
These borrowers often have strong portfolios and extensive experience but face bank-imposed limits or restrictions that private lending can bypass.
Common Scenarios:
- Second and Third Mortgages: Used to extract equity from properties that already have a first mortgage. This is a common strategy for financing renovations, covering closing costs on new purchases, or acquiring additional properties without selling existing assets.
- Overleveraged Portfolios: Banks may decline further lending once debt-service or exposure thresholds are met, regardless of the equity in the portfolio. Private funds offer flexibility, especially when cross-collateralization is a viable option.
- Zoning, Permit, or Use Issues: Properties with irregular zoning (e.g., mixed use, rooming houses) or missing permits may be declined by traditional A-lenders. Private lenders, in contrast, focus more on the current and future value of the asset rather than on strict regulatory compliance.
Case Example: A developer in Hamilton needed $200,000 to finish converting a triplex to legal units. City delays had paused construction. A private lender offered a second mortgage at 75% combined LTV. Once occupancy was granted, the project was refinanced with a B-lender.
Special Situations and Niche Needs
Some private lending scenarios don’t fall neatly into the conventional borrower profiles but represent legitimate and essential use cases nonetheless.
Common Scenarios:
- Litigation Funding: Parties involved in ongoing legal proceedings may borrow against real estate to fund legal fees or bridge income gaps.
- Estate or Probate Financing: Executors or beneficiaries may need funds to pay taxes, legal fees, or distribute inheritances prior to the liquidation of estate assets.
- Business or Corporate Needs: Funds may be used for a variety of business-related purposes, including:
- Business expansion or equipment purchases
- Settling tax arrears
- Resolving partner buyouts or shareholder disputes
Case Example: A family business in Nova Scotia secured a $300,000 private mortgage on a warehouse property to resolve a shareholder dispute and avoid litigation delays. The property was refinanced with a commercial lender eight months later.