You have applied for a mortgage on your dream home. It has been 15 days and you still haven’t heard from the bank. You are beginning to wonder if the deal will fall through. Meanwhile, an investor you have never met is in the same boat. As closing day on the investment property approaches, he is waiting on bank approval. Why is it taking so long?

Both mortgages and business loans can take weeks to gain approval. Then it can take a few more weeks to complete all the paperwork and get the loan funded. Bank funding is a long, drawn out process that can drive you crazy if you are not prepared for it. That’s why most property closings are scheduled for months down the road.

A Lot of Little Things

There isn’t just one thing causing the problem. Think of traditional lending as similar to growing your own vegetables. You don’t plant seeds and have vegetables ready to eat the next day. It is a process, and a long one at that. Bank lending is eerily similar.

The time it takes for bank loans to be approved depends on a lot of little things, including:

• Verification Requirements – Following the housing crash caused by the Great Recession of 2008, new verification requirements were instituted. Banks now have to jump through a lot more hoops to approve loans.
• Paperwork – To get a loan from approval to funding means sending it through many different channels. In some institutions, an application could go to six or seven people. Each one requires additional paperwork. Paperwork takes time to complete and submit.
• Underwriting – The underwriting process is perhaps the most complex step in getting a loan funded. Underwriters are notorious for requesting additional documents above and beyond what is initially submitted.
• Title Searches – Before a loan is funded, a title search has to be run. That takes time. Meanwhile, the property in question also has to be appraised.

All of these factors are currently being exacerbated by historically low interest rates. Low interest rates lead to more buyers for both residential and commercial properties. The extra business slows everything down because loan officers, underwriters, etc. all have more to do.

The Hard Money Difference

Traditional bank funding isn’t the only option in all cases. Where commercial and investment real estate are concerned, borrowers can apply for hard money loans instead. Hard money is so named because loans are based on hard assets being offered as collateral.

Actium Partners is a Salt Lake City private lending firm that specializes in hard money and bridge loans. They can do in days what it takes banks weeks to do. They have even been known to approve and fund hard money loans in under 24 hours. How?

Hard money lending is different in the sense that lenders have more discretion. Your typical hard money lender doesn’t look at all the same details banks look at. They are not interested in credit reports, tax returns, and income statements. What they are concerned about is collateral.

Hard money loans can be approved quickly because the value of the collateral being offered largely determines whether or not the lender will approve a loan and, if so, the amount approved. It takes little more than an appraisal and some additional research to get approval.

Traditional bank loans take a long time because they involve a lot of moving parts. Between the number of people involved and the amount of paperwork that has to be done, getting a traditional mortgage or business loan can take a long time.