For commercial property owners, securing the funds you need is not always straightforward.. This is because normal channels of funding usually do not deliver their assistance when it’s really needed, or the process of securing funds takes too long to be of immediate benefit. This means that a commercial property owner will have to seek alternative sources of funding to meet his/her immediate needs. This is where private hard money lenders come in.
Private hard money lenders: Who are they?
Hard money lenders refer to private entities who deliver funds under different terms than conventional financial institutions. The funds aren't disbursed according to the state of the borrower’s credit worthiness, but they're backed by the value of property. This type of financing is also known as a short-term bridge loan because it can save the situation while the borrower makes arrangements to acquire more conventional funding.
Since hard money is considerably easier to acquire, this type of funding comes with an interest rate that is a little higher than the ones being charged by banks. Its main attraction is the immediacy and the fact that it will rescue you from a tricky financial position as a commercial real estate owner.
Private hard money lenders: Who are they?
Hard money lenders refer to private entities who deliver funds under different terms than conventional financial institutions. The funds aren't disbursed according to the state of the borrower’s credit worthiness, but they're backed by the value of property. This type of financing is also known as a short-term bridge loan because it can save the situation while the borrower makes arrangements to acquire more conventional funding.
Since hard money is considerably easier to acquire, this type of funding comes with an interest rate that is a little higher than the ones being charged by banks. Its main attraction is the immediacy and the fact that it will rescue you from a tricky financial position as a commercial real estate owner.
The need to borrow hard money. Here are situations where hard money comes in handy:
Hard money lenders in most cases will advance you funds equivalent to 65% of the value of your commercial property when in good repair. This kind of financing assumes the first lien position, meaning that in case of non-repayment, the hard money lender gets paid first.
Such loans are not long-term, so they're not ideal in cases where your financial needs exceed 2-3 years.
Interest rates and costs of borrowing
The ease with which you'll obtain hard money and the fact that a credit score is not considered necessitates the need for a slightly higher interest rate, which is usually in the region of 12-18%. There are also closing charges that could amount to no more than 10% of the value of the loan.
- Sometimes you may need to acquire property rather quickly, but you may be short of funds. Your quest to get financing from your bankers may be successful but not immediate. This may mean that you have to skip the purchase, since banks can be slower to approve the funding you need. It's in a situation like this that you may approach a private hard money lender.
- If you're in a financial crisis and the threat to have your commercial property foreclosed is real, you may use the value of your property to negotiate a loan with a private hard money lender to save your property. Such a loan will also help you buy time during which you may sell the same property or another one, or you could use this time to reorganize your finances in another way.
- Poor credit scores may impair your ability to qualify for funding from traditional lenders. Hard money lenders can save the situation. The funds are pegged to the value of the house, and the lender will not consider your credit score if the title of the house is clean and you have property to back your loan.
- Emergency renovations can be carried out using loans form hard money funding. Emergency repairs could be made necessary by accidents and calamities like fire, earthquakes, and severe weather. The funds necessary to carry out the repairs may not be ready, and banks and insurance companies may take valuable time before they release funds to you.
Hard money lenders in most cases will advance you funds equivalent to 65% of the value of your commercial property when in good repair. This kind of financing assumes the first lien position, meaning that in case of non-repayment, the hard money lender gets paid first.
Such loans are not long-term, so they're not ideal in cases where your financial needs exceed 2-3 years.
Interest rates and costs of borrowing
The ease with which you'll obtain hard money and the fact that a credit score is not considered necessitates the need for a slightly higher interest rate, which is usually in the region of 12-18%. There are also closing charges that could amount to no more than 10% of the value of the loan.