Alternative Lending/ “B”- Lending

The alternative lending space was truly formed from the adage “Necessity is the mother of invention”. Unlike, the prime/”A” lending space where the Banks and Credit Unions prefer to lend, alternative lenders like to particularly lend to borrowers who don’t fit the small box set out by the Banks.

A stigma may have formed over the years that “B” lending was only for people with bruised or damaged credit. Although bruised/damaged credit is one of the areas served by alternative lenders, it’s becoming moreover an excellent and popular option for the self-employed, luxury home market with values over $1.5MM, rental property investors, and commissioned salespeople.

About “B” Lenders

Generally, the mindset of the “B” lender is different. Whereas the “A” lender focuses mainly on the borrowers (income, credit score, down payment, net worth), the “B” lender on the other hand is focused on the property (Value, saleability, condition, loan-to-value, and location, location, location).

The alternative lender typically will want a minimum of 20% down or equity (more depending upon the application). They like major urban markets where there is a minimum population of 50,000 or more, and most importantly they want the property to be in good to excellent condition.

Lending rates are usually 1%-2% higher than the banks to offset the risk to the lender and there is also a 1%-3% lender fee which is used to help compensate the lender and the mortgage broker. The documentation requirements are generally the same as an “A” lender.

Clients Who Fit Best With Alternative Lenders

A typical client profile for a “B” lender is

1. High value property $1,500,000+

2. Properties to be held in company/corporate names

3. 2nd mortgage products HELOC & Credit Card.

4. Bad credit

5. Self-employed borrowers without a 2-year history in business or low-claimed income.

6. Previous bankruptcy or consumer proposal (even double bankruptcy)

7. Can use mortgage proceeds to payout an existing bankruptcy or consumer proposal early.

8. Commissioned Sales People

9. Rental property portfolios under 10 properties.

As banking regulations tighten along with the bank’s credit and risk policies, “B” Lenders are available to find the right lending solutions.

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