Hard Money Loans vs. Conventional Lending: When to Use a Commercial Hard Money Loan

Although sometimes traditional lending can be an excellent option, you’ll need a commercial hard money loan for a real estate business deal that requires something extra. Following are the cases when you may consider getting a commercial hard money loan:

If your Investment has a High Potential Yield

In case you want to purchase a property with a 6% annual return, then it’s safe, conservative and stable to get financing from a credit union or bank. This is because commercial hard money loan lenders provide funds and flexibility that may allow you to obtain riskier properties that have the potential to generate higher returns. For instance, if you purchase rehab properties where you anticipate to make over 50% returns on resale, paying a higher interest rate for commercial hard money loans is reasonable, keeping in mind that you stand to earn more from the deal.

For an Investment that Needs to Close Fast

Traditional financiers sometimes take months to approve a loan request. On the other hand, commercial hard money loan lenders can help you close in a matter of weeks. Although normal hard money loan lenders can close in three weeks, others can provide the funds in three days if you are qualified and have a special need. Such lenders can help you to venture in some of the best deals.

 If you Find it Challenging to Qualify for a Bank Loan

Commercial hard money loans are great for individuals with poor credit scores that may get them disqualified to obtain bank loans. Commercial hard money loan lenders will only look at you and assess your ability to repay regardless of your credit score and total debt level, especially if you have enough down payment and the deal looks like a good venture.

Your investment requires rehabilitation

Conventional lenders will consider the appraised value of the asset you want to invest in. However, commercial hard money loan lenders can value the property after you have rehabilitation. The increased value will enable you to obtain more finances to help you pay for the property as well as the improvements, and ensure that you get high returns while you use your equity to conduct more business deals.