8 Common Reasons Why Borrowers Choose Commercial Hard Money Loans

Not just any other real estate project will get financing through traditional lenders' guidelines and limits.

last updated Wednesday, May 17, 2023
#Commercial Hard Money loans #Credit Score

John Burson     Subscribe
8 Common Reasons Why Borrowers Choose Commercial Hard Money Loans


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 non-cookie-cutter deals need borrowers to look for alternative financing options like commercial hard money loans.

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

Common Reasons why you Should Choose Commercial Hard Money Loans

The borrower requires a higher amount.

Gap financiers are flexible enough to offer higher leverages than traditional bank lenders 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, the chances of getting a loan are higher than through the bank.

The Real Estate Property isn't Generating enough Cash-flow.

Traditional lenders almost always underwrite their commercial loans based on the operating statements, net operating income (NOI), and property cash flow. This means the risk is high when an asset doesn't produce enough revenue. However, commercial hard money loan lenders aren't restricted to debt service coverage, meaning they will look at the asset's value, not the income it produces, 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 wait long and risk losing the opportunity to buy the property by the closing date. Commercial hard money loan lenders take less time and don't do 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 loan size, asset class, neighborhood makeup, location, and market trends. On the other hand, a commercial hard money loan 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. Commercial hard money loans are usually set for one year to 3 years maturities.

More Affordable Compared to Using Equity

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

The Credit Score

Most commercial real estate borrowers with a credit score below 650 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 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 commercial hard money loans lender.


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Commercial Hard Money loans