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8 Common Reasons Why Borrowers Choose Commercial Hard Money Loans


paperfree Aditi Bansal 29:14
Published on Thursday, April 27, 2017

Not just any other real estate project will get financing through traditional lenders guidelines and limits. In such situations, the risks are higher for lenders and their willingness to lend will decrease substantially.

tags  #Commercial Hard Money loans  #Credit Score #Quick Closing

 

Not just any other real estate project will get financing through traditional lenders guidelines and limits. In such situations, the risks are higher for lenders and their willingness to lend will decrease substantially. Such types of non-cookie-cutter deals need borrowers to look for other alternative financing options like commercial hard money loans.

The interest rates for most commercial hard money loans are a bit higher compared to conventional loans, but in the current ups and downs in the real estate industry, commercial hard money loans have helped in moving it forward.

Common Reasons why you Should Choose Commercial Hard Money Loans

The borrower requires a higher amount

Gap financiers are flexible enough and can offer higher leverages compared to traditional bank lenders who are restricted by their underwriting and guidelines. However, this doesn’t mean that commercial hard money lenders don’t have any lending limits. These lenders have loan-to-value or LTV limits. But, in a case where the value of a property can support the commercial hard money loan, chances of getting a loan are higher than through the bank.

The Real Estate Property isn’t Generating enough Cash-flow

Almost always traditional lenders underwrite their commercial loans based on the operating statements, net operating income (NOI), and cash flow of property. This means that when an asset isn’t producing enough or any income, the risk is high. However, commercial hard money loans lenders aren’t restricted to debt service coverage meaning that they will look at the value of the asset and not the income it produces for them to determine the amount to lend to you.

Making a Quick Closing

Conventional lenders usually advertise a 45-90 days loan processing time after approving a commercial real estate loan. When a good deal comes by, a buyer won’t want to risk waiting for such a long time and risk losing the opportunity to buy the property by the closing date. Commercial hard money loans lenders take less time and don’t make similar reviews before closing a loan.

Traditional Lender Underwriting Procedures

Traditional lenders follow specific lending underwriting guidelines and parameters. Most of these procedures are based on some factors including loan size, asset class, neighborhood makeup, location, and market trends among many others. On the other hand, a commercial hard money loans lender isn’t restricted by any guidelines, and they have the freedom to fund any real estate project.

Short Term Loans

Commercial hard money loans are sometimes defined as bridge loans because they are short term. A commercial property owner can plan to develop a property or have any other agenda that requires a short financing period. In most cases, commercial hard money loans are set for 1 year to 3 years maturities.

More Affordable Compared to Using Equity

A loan that requires a 10-18% interest and 3-4 points isn’t a cheap loan. However, it can be less expensive than the cost of getting equity from other equity sources or joint venture partners. Other than interest in the money, a partner will likely need some ownership of the project also. This can greatly change your ROI (return on investment).

The Credit Score

Most commercial real estate borrowers that have a credit score that is below 650, they don’t qualify for traditional lending.

Property Issues

Sometimes the property may not be ideal for a traditional loan, for example, when an asset has some environmental complications that are noted on the 1st or 2nd phase report, site visit, or through an appraisal. All these can be challenges for traditional lenders but not for a commercial hard money loans lender.



This page with a focus on Commercial Hard Money loans, Credit Score was shared by Aditi Bansal.

 
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