When should a mortgage broker send a commercial client to an alternative lender?

For the majority of a mortgage broker’s commercial mortgage borrower clients, a traditional A-lender will be a great fit. However, there will be some who fall outside the rigid criteria held by traditional banks. That’s where alternative lending through PHL may be able to help. 

Alternative lending offered through PHL can provide mortgage solutions for commercial property buyers who do not meet the lending guidelines of traditional banks, and for deals that require a quick turnaround. When traditional options fall short, Mortgage Investment Corporations (MICs), including those funds managed by PHL Capital Corp., can provide flexible financing solutions. Alternative lending isn’t just a last resort; our team takes a holistic look at both the business and property, making alternative financing a strategic choice for many deals.

When should mortgage brokers consider an alternative lender for their commercial clients?

The criteria and guidelines followed by traditional A-lenders are quite rigid, whereas alternative lenders take a more holistic approach to considering an application. If your client’s situation reflects any of the following, alternative lending mortgage solutions through PHL may be a good fit:

1. Have a temporary financial setback: Temporary financial setbacks happen and may affect a borrower’s credit. Whether it’s the effects of a down economy, empty retail spaces, or unexpected hiccups, alternative lending may provide financing options for these borrowers.
2. Need bridge financing: Alternative lenders may help provide bridge financing for time-sensitive acquisitions, refinances, or transitions where timing is critical, and there is a defined repayment path.
3. Have a new business:  Traditional lenders tend to appreciate certainty, and projected outcomes from a new business may not be enough to meet their criteria. Alternative lenders are often more willing to consider a broader range of factors beyond established income history, which can make them a potential option for newer businesses.
4. Have high debt-to-income ratios: Alternative lenders may have greater flexibility to provide funds for commercial mortgages to applicants with higher debt-to-income ratios, but otherwise strong financial history and projected income.
5. Are purchasing a property under tight timelines: For commercial properties, traditional banks’ approval timelines may not align with a time-sensitive closing. If your client needs a faster turnaround time, alternative lenders may be able to provide a faster approval.

How do you know if your client is a good fit for alternative lending?

Alternative lending can be a strategic solution for mortgage brokers to help commercial clients advance their property deal. With equity-based lending, PHL may be able to offer mortgage lending solutions that traditional banks cannot. These mortgage lending solutions include, in B.C. and Alberta, fully open loans from $50K to $30M, with no income documentation required (subject to underwriting criteria and property type). If you think your client may be a good candidate for alternative lending, here are a few questions to consider:

• Does your client have a well-considered exit strategy?
• Is your client operating a new business without establish income history?
• Does your client have an investment property with expiring leases, or is not fully leased?
• Does your client have an existing commercial real estate portfolio they are looking to scale?

What criteria do alternative lenders consider about a commercial property buyer needing financing?

While traditional banks rely heavily on rigid ratios, alternative lenders evaluate the broader strength of the proposal. At PHL Capital Corp., as a MIC manager, our underwriting team takes a holistic view of both your client and the property. We balance speed and flexibility with strict risk management to ensure every deal makes sense for the borrower, the property, and the lending entity (i.e. the MIC/fund).

Key evaluation criteria include:

• Equity and assets, including other properties
• The borrower’s plan for the property
• A defined exit strategy
• Net worth and overall financial position
• Liabilities and outstanding obligations
• Credit history, where relevant

How does alternative lending work? What is the process of acquiring alternative financing for a commercial property?

At PHL, we strive to keep our process straightforward and approachable. If you believe your client meets the criteria for alternative lending, here is what you can expect when partnering with us:

• Step 1: Submit your proposal. Our team is available to discuss your client’s needs and suitability via phone or email, or you can submit the proposal online.
• Step 2: Once your proposal has been received, we will request your client’s credit bureau report for assessment and review. We review credit history as part of the file, but borrowers do not need to meet a minimum credit score to be considered. We keep our documentation requirements as streamlined as possible.
• Step 3: The property will be appraised by one of our approved partners to confirm its value and suitability.
• Step 4: If your client’s assessment and appraisal meet our guidelines, PHL will move forward with a commitment letter. Knowing how quickly the real estate market moves, we aim to offer 24-hour commitments and feedback. 
• Step 5: To complete approval, outline the purpose of the funds, your client’s repayment plan (exit strategy), and any other relevant details. This ensures we understand your client’s needs and goals.

Case Study

Here is an example of how PHL was able to fulfill a deal with a broker on behalf of a corporate borrower in British Columbia who required $3.2 million in bridge financing, which was secured by a portfolio of industrial strata units.

The Borrower’s Story:

The borrower’s business had experienced a period of softer performance following COVID, which limited short-term conventional financing options, but the business was showing signs of recovery. PHL was able to provide them with a loan; the majority of these proceeds were used to repay existing institutional debt and related closing costs, with only minimal equity take-out. 

Loan amount:

$3,200,000

LTV:

The loan is secured by four industrial strata units with a combined appraised value of $12.2M, resulting in a relatively conservative loan-to-value (LTV) ratio of 26.23%.

Why this deal fits PHL:

This deal fits PHL because it reflects the type of opportunity where equity, asset quality, and timing matter more than rigid bank-style underwriting. The transaction is supported by a strong industrial asset base, a low LTV, and a clear bridge purpose tied to a business transition. It aligns with PHL’s strength in equity-based commercial lending and its ability to provide flexible financing solutions where conventional institutions may be unable.

Should mortgage brokers consider alternative lending for their clients’ commercial property purchase?

If your client falls outside the rigid guidelines set by traditional A-lenders, or if the deal requires quick turnaround times, then alternative lending may be a good option to explore with your commercial property client. If you have a commercial deal that falls outside the rigid criteria of traditional A-lenders, one of our underwriters can review your proposal.

Frequently Asked Questions

1. When should a mortgage broker consider sending a commercial client to an alternative lender?
   
   Mortgage brokers should consider an alternative lender when a client falls outside the lending guidelines of a traditional bank or when a deal requires a faster turnaround. This may include clients who have experienced a temporary financial setback, need bridge financing, are operating a new business, have a higher debt-to-income ratio, or are purchasing a commercial property under tight timelines.
   
   
2. How do alternative lenders evaluate commercial mortgage applications?
   
   Alternative lending takes a holistic approach to underwriting rather than relying solely on rigid lending criteria. In addition to credit history, PHL considers factors such as the borrower’s equity and assets, net worth, liabilities, the property’s purpose, and the client’s exit strategy to determine whether the financing makes sense for both the borrower and the lender.
   
   
3. What makes a commercial client a good fit for alternative lending?
   
   A commercial client may be a good fit for alternative lending if they have a clear exit strategy, are operating a new business without an established income history, own an investment property with expiring or vacant leases, or are looking to expand an existing commercial real estate portfolio. Alternative lending can provide greater flexibility for borrowers whose circumstances do not fit traditional bank requirements.
   
   
4. How does the commercial alternative lending process work at PHL?
   
   The process begins with submitting a proposal for review. PHL then assesses the client’s credit history, arranges for an appraisal through an approved partner, and evaluates the overall strength of the application. If the deal meets underwriting guidelines, PHL issues a commitment letter, often within 24 hours, before finalizing the loan with details about the purpose of the funds and the borrower’s repayment plan.
   
   
5. Is alternative lending only for borrowers who have been declined by a bank?
   
   No. While alternative lending can provide solutions when traditional financing is not available, it is not simply a last resort. It may also be worth considering for commercial borrowers who need bridge financing, require faster approvals, or have strong equity and assets but do not meet the criteria of conventional lenders. For many commercial transactions, alternative lending may provide a practical financing option.
   

Disclaimer

This blog article (“Blog”) is for information purposes only and may not reflect current legal developments or any updates to industry terminology. Accuracy of information in this Blog is not guaranteed. “PHL” refers collectively to PHL Capital Corp., MortEq Lending Corp., and Oakhill Lending Corp. While all information in this Blog is provided in good faith, PHL, and any affiliate, subsidiary or related party of PHL Capital Corp., make no representation or warranty of any kind, express or implied, regarding the accuracy, validity, reliability, or completeness of any information in this Blog. Readers are encouraged to consult independent legal, tax, and accounting advisors prior to making any financial decisions. PHL Capital Corp. is a licensed mortgage brokerage in British Columbia, Alberta, and Ontario (Ontario licenses #13546 and #13570).