As the funding terrain in the real estate investment sector continues to evolve, both beginner and experienced commercial real estate investors find that they have many more options available to them than in past years.
They can now confidently secure commercial real estate loans faster and with fewer complexities than they would experience when approaching traditional commercial lenders like banks and other conventional lending institutions. Who wants to go through the disheartening back and forth, stringent lending guidelines and endless paperwork of the older lending brigade when they could achieve the same result faster through hard money lenders? Certainly not you, we bet.
Commercial hard money lending continues to grow in popularity and the trend is not slowing down anytime soon. Why should it? As more and more individual borrowers notice that they can quickly get funds for their hard-to-place real estate deals through us even when other commercial lenders won’t help, our customer base continues to grow.
We are convinced that the more people that come to know about hard money lending and how it works, the better. Our years of experience in this field has allowed us to see the positive impact on the lives and businesses of our clients. Working with us could be one of the best and most important decisions you’ll ever make.
Below you’ll find the information you need on hard money loans, how they work and a few tips to help you make an informed decision.
What Does Commercial Hard Money Loan Mean?
Without wasting too much of your time on technicalities, we’ll boil it down to the major thing you need to know. The difference between commercial hard money lenders and traditional commercial bank loans is in the way they mitigate risk. They both use depositors/investors’ money to fund your real estate projects so they need to have their back covered if “things go south.” It doesn’t matter the type of loan, as long as money is changing hands, the lender must have a strategy in place to recover their money in case of default.
Traditional Commercial Loans
The age-old strategy of private banking institutions is pretty straight forward. They focus on the borrower’s credit performance, basically, their financial position and ability to ability to make payments when due. That’s why they’ll ask you for information like your credit history and payroll proof to make an informed decision on whether or not to approve the requested loan.
The major weakness of the banks is that as interest rates inevitably rise, they will keep turning down even more loan applications making the whole qualification process more difficult.
Hard Money Commercial Loans
The commercial hard money lending concerns have an asset based risk mitigation strategy.
The loan they’ll offer you will be a “safe” percentage of the estimated value of the property you offer as a collateral. That way, even borrowers with a poor credit rating can get funds here. In cases of default, the collateral obviously will be liquidated to recover the lenders money.
How Commercial Hard Money Lending Can Work For You
Step 1 – Identify the lender you want to work with. There are many ways to find reputable hard money lenders but we’ll advise you read online reviews or ask around for referrals. Discuss with them and make sure all your questions are answered and you are handled in a professional manner before you go ahead.
Note that not every lender will be the right fit or will offer you the kind of services you want.
Step 2 – Prepare and present your collateral. As mentioned before, this kind of lending is real asset based. Preferably, you should offer properties like industrial property, non-owner occupied family properties registered in a corporate or LLC name, retail property, office buildings and apartment buildings.
Step 3 – Getting an accurate estimate of the properties worth. Properly assessing the project’s final price is vital to the success of the loan application so the lender will at this point request a BPO. Once that is done, you will get a loan advance rate offer based on a percentage of the value of the asset.
Step 4 – Funding. If you’re okay with the amount offered and everything else checks out, the funds will be released to you.
Why Is Hard Money Lending So Popular?
We did mention that we have noticed an increase in patronage. Here’s why so many people are opting to go this route:
- No stress about credit rating. We are primarily concerned with the value of your asset collateral. Though a good rating score won’t hurt, it’s not really our focus.
- If for some reason you can’t get a standard mortgage, this could be a suitable alternative for you.
- Our loans are faster to access. House flippers, in particular, stand a better chance of getting the needed money quickly through us. If you were to go the traditional banking route, you can expect to wait many weeks or months before getting the funds.
- The conditions and interest rates are different from conventional lenders. Standard mortgage loans run from ten to forty years and come with low-interest rates. Hard money commercial loans run from one up to three years but with a higher interest rate. They are ideal for experienced real estate traders who want access to quick funds. The potential profits of the venture will more than make up for the higher interest rate.
In conclusion, if you’ve never considered approaching a hard money lender, you seriously need to think about it. Whether you’ve already been turned down by the bank or not is inconsequential when you are looking for a quick real estate transaction.
Why try running a race track with an 8-wheeler (the banks) when you can use a Ferrari (us)?