Multifamily Housing Mezzanine Loans - Continued...

Mezzanine loans are typically used to finance what would otherwise be equity capital (cash) the project developer would otherwise be expected to provide.  This means the underwriter will be looking at the developer's financial statements to determine if the developer guaranteed the loan.

Why?

Because SOME people believe the only way you can allow an entrepreneur to access capital is in the case where the entrepreneur guarantees all outcomes with the entrepreneur's net worth as the source of the guarantee.

Say what?

That's right.  Banks live to create loan transactions where they have control of your assets, make you pledge all your income to them as repayment.  This means the bank will lend money only to the fools who will agree to let the bank control all aspects of the entrepreneur's business.  You let them control your life, your business and your cash flows and they let you keep some of it.  Great deal, eh?

Think this is bull?  Yeah?  Read on, pilgrim.

When you get a construction loan, the bank makes you give a pledge of all your assets to the satisfaction of the loan.  Until the loan is paid off, you are not legally allowed to dispose of these assets without the bank's prior written consent.

That's the same as the bank owns your assets and lets you use them.  You can't pledge them.  You can't refinance them.  You have to sit on them.  All the money these assets generate are technically the property of the bank until you repaid the loan.

Why is this cruel?

Guess who is reporting your collateral on their financial statements and using YOUR COLLATERAL to obtain additional funding to lend to more suckers?

Why, your local commercial bank.