"Proprietary Loan" vs "Guaranteed Loan": Which one is more cost-effective? Effective methods to negotiate with banks.

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In fields such as real estate investment, the choice of financing method directly affects investment returns and risks. "Proper financing" (unsecured financing) and "guaranteed financing" (secured financing) each have their own characteristics. A thorough understanding of them is crucial to gaining the upper hand in negotiations with banks.

1. The Basic Concepts of Two Types of Financing

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• Proper loan: An unsecured financing method where financial institutions extend loans directly based on a comprehensive assessment of the borrower's credit and repayment ability, without relying on third-party guarantor institutions.
• Guaranteed Loan: Financing provided on the condition of a debt guarantee by a "guarantor organization" such as a credit guarantee association. When the borrower cannot repay the debt, the guarantor organization will make the repayment on their behalf.

2. Differences from the Perspective of Financial Institutions

1. Risks and Considerations of Guaranteed Loans

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1. Competitive Risk: Guarantee fees increase the burden on borrowers. If other financial institutions offer more favorable conditions, the institution may lose financing business due to uncompetitive conditions, increasing the inventory burden. Data shows that 23% of financial institutions have lost financing business due to a lack of advantageous conditions.
2. Risk of Cooperation: Frequent substitutions can lead guarantee institutions to question the financial institutions' screening capabilities, possibly resulting in the guarantee institutions refusing further cooperation. In some regions, about 15% of financial institutions have had their cooperation suspended by guarantee institutions due to substitution issues.
3. Review Linkage: Guarantee organizations will take into account the "financing attitude of financial institutions" during their reviews. If the same financial institution repeatedly requires substitution repayment, it may be placed on a "cautious cooperation list" by the guarantee organization.

(ii) Advantages of Guaranteed Loans

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1. Risk protection: Effectively reduces the credit risk of financial institutions, ensures the safety of funds, and increases the rate of capital preservation. According to statistics, projects using guaranteed financing experience a default loss rate approximately 40% lower than those using unsecured financing.
2. Capital optimization: helps improve the capital ratio of financial institutions, strengthen capital strength and enhance risk resistance.

Advantages and Disadvantages from the Borrower's Perspective

Disadvantages of Secured Loans

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• Cost increase: Borrowers need to pay guarantee fees, which essentially equate to an increase in financing costs. Generally, guarantee fees account for about 1-3% of the financing amount.
• Increasing Restrictions: Subject to the constraints of guaranteed institutions' review conditions, there may be stricter regulation on the use of funds.

Advantages of Guaranteed Loans

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• Rapid approval: The review speed of guarantee institutions has accelerated, allowing for quicker access to financing when funds are urgently needed. Surveys show that the average time for guaranteed financing to be in place is 3-5 working days faster than proprietary financing.
• Increase success rate: For borrowers with average credit records or questionable repayment ability, having a guarantee can increase the likelihood of financing approval.

4. Different Handling Policies of Financial Institutions

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• Discrepancies in business metrics: Some financial institutions set the number of new guaranteed financing transactions as an evaluation metric, and may promote them to borrowers even if there is no necessity for a guarantee.
• Frequent strategy adjustments: Financing business strategies often change without sufficient explanation, making it difficult for borrowers to anticipate in advance.

5. Recommendations on the Selection of Financing Methods in Real Estate Investment

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• Priority Assessment: For income-generating properties, as they can be used as collateral themselves, propriety financing is usually prioritized to avoid increasing costs due to guarantee fees.
• Flexible response: If time is tight and you need to quickly obtain a loan, you can opt for guaranteed financing; if time allows, you can consult multiple financial institutions and make a decision after comparing the terms.
• Comparison in multiple ways: Before the negotiation, visit several financial institutions to fully understand the terms, interest rates, approval processes, and other aspects of different financing options offered by different institutions in order to secure the most favorable terms.