How to Finance Non-Cash Flowing Properties

by Karl Utermohlen
How to Finance Non-Cash Flowing Properties

Cash flow is generally the key in determining the value of commercial real estate properties. However, some commercial real estate properties that do not generate cash flow, due to the loss of tenants, property repositioning or speculative construction, still have significant value.

Traditional lenders have rigid lending requirements and are risk averse. For these lenders, cash-flow is critical to their decision to make a loan, as they want to know that the properties can support interest payments on their debt. As a result, it is difficult to find a traditional lender that will finance a non-cash flowing property.

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On the other hand, certain private or direct lenders are willing and able to take the time to understand the value in non-cash flowing properties and creatively structure loans accordingly.

Here are some of the problems associated with financing a non-cash flowing property that private lenders are able to solve.

Even if you personally don’t have a lot of relevant experience, a private lender can see the opportunity in the value of a strong property and market.

If you don’t have a strong track record, you’re out of luck.

strong track record


To traditionally finance a non-cash flowing property you or your partners must be able to show similar successful past transactions. Basically, these are your options:


  1. You are an existing borrower with a strong track record.
  2. You come highly recommended by another lender they know that has successfully
  3. financed similar transactions for you.
  4. You are a well-known and financially strong player in that specific market.
  5. You are willing to personally guarantee your loan.


By contrast, certain private or direct lenders underwrite loans based on the value of the collateral, and do not underwrite the borrower. So even if you personally don’t have a lot of relevant experience, a private lender can see the opportunity in the value of a strong property and market. Direct lenders like iBorrow only issue non-recourse loans, which means they underwrite the property – not you.

Private lenders favor low-leverage deals, which helps them mitigate the risk of a non-cash flowing property.

low risk loans


The loan-to-value (LTV) ratio is a common tool used by direct Commercial Real Estate (CRE) lenders in order to manage risk. LTV is calculated as the amount of the loan divided by the value of the property or project. Loans with an LTV of 65% or below are generally considered to be low leverage, or conservative, loans.


Direct lenders typically like you to have more “skin in the game” and contribute a significant amount of equity upfront. They will provide capital to renovate or reposition the property so that you can become cash flowing, but they want to know you’ll put in the work to make that happen. Low-leverage deals helps to guarantee this.

Many direct lenders favor short-term (bridge) loans.

bridge loans


You are probably not going to get 10-year, 7-year, or even 5-year financing easily on a non-cash flowing property that is not pre-leased. A traditional lender may give you some time to renovate or reposition the property, but they want the property to start generating cash flow as soon as possible.


Direct lenders are ideal for non-cash flowing properties because they prefer short term, or bridge, financing. This gives you just the right amount of time to turn your property into a cash flowing property, and then seek long term financing from a traditional lender.

Traditional lenders usually require personal guaranty.

personal guaranty


Even if there is significant equity in the property, a traditional lender will typically want a borrower’s personal guarantee or at minimum require a debt service guarantee to make sure the loan payments are supported. A personal guarantee is unsecured, meaning it is not tied to a specific asset. So if you default on your loan, the lender can go after your personal assets.


Direct lenders like iBorrow secure their loans by using the borrower’s property as collateral. If a borrower defaults on this loan, the lender then takes ownership of the property – no surprises and no lawsuits.

Non-cash flowing property + traditional lender = significant underwriting time

underwriting time


Non-cash flowing properties require more time to underwrite because there needs to be certainty in the market, the repositioning or leasing strategy, and a full and comprehensive analysis of the guarantors assets, liabilities, liquidity and cash flow. Traditional lenders typically take several months to diligence a potential loan.


However, private lenders like iBorrow provide a simple application process and a Letter of Intent can be issued typically within 48 hours. After that you can receive fast funding in as little as two weeks.


There are many financing options out there for cash flowing properties. However, non-cash flowing properties require more effort to find a lender because each property and repositioning strategy is unique. These properties require creative, flexible, and custom financing solutions, which a private lender is able to provide.

    by Karl Utermohlen

    Karl Utermohlen is a freelance technology and finance journalist who has been published in various other publications such as InvestorPlace, Motley Fool, TechEmergence and Digital Trends. He holds an MFA in Creative Writing from the University of Idaho.

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