What is Alternative Financing?
Alternative Financing started gaining momentum in the capital markets crunch after the Great Recession. However, these models-such as Mezzanine Financing, EB-5 capital and of course, crowdfunding-are coming into their own. Crowdfunding officially qualifies as a bona fide industry buzzword. Alternative Financing came to provide the solution to widespread access to capital for entrepreneurs who needed capital, but couldn’t raise much money or couldn’t afford the expensive legal fees associated with putting together private placements. Alternative Financing is going to continue to become very important.
Why Consider Alternative Financing?
With Banks constantly being put under harsher regulations, and the new regulations that kicked in at the end of 2015 for CMBS, there’s a definite void in the market. The void is being filled by Specialty Financing and alternative lenders. The large Specialty Finance players come from Private Equity and other investors. We have seen larger deals taking place, such as $20 million and up. Alternative and Private Lenders are usually beneath that level but are increasing their loan sizes. Developers in certain markets have discovered Private Investment can operate even more efficiently and with less regulation than Banks at a time when deals need to be made quickly. The clear winners are the Private investors who can move quickly to generate returns on their equity, and developers who can manage to eliminate traditional lending from their building process and continue to fund projects as competition slows.