We deal with hard money commercial loans. Many ask us what they are. In short, a commercial hard money loan is based upon the value of your collateral not upon your creditworthiness. So, let’s say you have a low credit rating or a dismal credit history – no matter. Hard, or bridge, money lenders look beyond that and consider the value of your property instead.
Bridge money commercial loans are risky which is why banks and conventional lending associations refuse to deal with them. Essentially, the hard money lender (or private money lender since it comes down to the same thing) is using his personal funds to bail you out of your trouble. Since he is taking a risk on your property, he wants to make sure that your collateral is worth his money. You may need to provide him with some evidence of your trustworthiness, but more than anything you’ll need to convince him that your property is attractive, has potential, and will more than redeem his loan. You’ll also need to show him you’ll be able to repay your loan. If you fail – and the interest is high – the hard money lender sells your property as repayment.
There are two types of loans: residential and commercial. Residential hard money loans deal with private property and are less risky to the borrower since states and consumer protection have tightened their regulations and shield the borrower from being exploited. For commercial borrowers, the risks are that much higher so only approach a lender if your credit is really low, if you need the loan, and if you have no other recourse.
Interest rates and fees, as mentioned, are high (12 – 15% and three points on the mortgage, or more), so you may want to opt for a commercial hard money lending fee as a short term solution. You may also want to couple it with funding from other sources. Some borrowers use short-term commercial lending fees for minor urgent needs; then seek a bank loan to repay the hard money lender. It is also important to know that since lenders work on a person per person basis and set their own rates, you can negotiate those rates. Some lenders are known for setting abysmally high rates. They think you have no recourse but to approach them for a loan. That you have come to the end of the road. Show therm otherwise. Approach various lenders: see if they can match your needs and if they carry your kind of loan. Also look into their schedules and terms of processing. Then, bring in a lawyer and negotiate your needs.
One of the pluses about the commercial hard money lending situation is that the process is simple and fast. There are few papers to fill out and sign. (Compare this to the traditional scenario where you have tons to complete and then have to wait at least 60 days for your answer). You can handle your money in less than a week. Sometimes, your credit solution could be literally just a handshake away. Loans are also more flexible since the transaction is carried out on a no-doc, private or personal basis where more trust exists between lender and borrower than it does in the formal situation of the bank or credit union. Lenders are mostly sensitive to your needs and many are willing to adjust repayment according to your abilities. They may consider some months of interest-only if you claim to be in trouble.
How can I get a good deal on my commercial loans?
Here are some things to consider when seeking commercial hard money lenders:
- Have a solid repayment and business plan in hand. That will guide you.
- Look for the right lender who is not only certified but can also answer all your questions. Moreover, the lender must be able to service your loan – the type and the amount that you need.
- Be up to date on typical terms and conditions. Know the exact amounts, percentages, and approximate range of time by which you should have the loan. Make sure that the lender clearly outlines his terms and conditions and that all clauses are complete.
- Choose the non-recourse loan. The recourse loans allows the lender to take your house and take legal action against you. The non-recourse loan allows him only to grab your property if you default.
- Go for the deals that give you the lowest points on a loan. A point, in commercial hard money loan terms is one percent of a total mortgage amount (if your mortgage is worth $1 million, then a point equals $10,000). The better going rates are between 3 to 5 points – lower points mean less in fees, and it’s even possible to find 1 point deals.
In short…
If you’re looking for a commercial hard money loan, personal money lenders can give you the type of loan that banks won’t touch. But they’re more expensive. The typical hard money commercial loan is a short term loan. You can get one for a maximum of 3-5 years, but watch out for excessively large interest fees, review the lender’s credibility, and make sure you can repay. Different money lenders specialize in different deals. Many win business based on speed. Commercial hard money loans are also more flexible and simple to transact. If you have the need and the money but can’t get your funds elsewhere, commercial hard money lenders may be your best answer.