Commercial hard money is a loan secured by commercial real estate. Commercial hard money is also known as a Bridge Loan, Mezzanine Loan, or a private equity loans. These type of loans place most weight for an approval on real estate asset instead of ones credit.
Loan to Value Expectations
Commercial hard money lenders give much importance on the value of your property, whereas banks and other traditional lenders focus more on your creditworthiness.
Since your credit history takes a back seat, hard money loans generally have lower loan-to-value ratios. After all, the only protection of lenders against default by the borrower is the property itself, which for the most part is not a liquid asset.
To know how much capital you can expect from hard money, below is the list of standard industry guideline.
* typically up to 70% percent on raw land
* typically up to 75% percent for industrial and special-use properties
* typically up to 80% percent on apartments and other similar commercial properties
* typically up to 90% percent on residential properties (1 – 4 units)
Most Hard money lenders will order an appraisal from a licensed state appraiser. They may order it directly from an appraisal or through a national appraisal network. In order to assess the value the property, not only will the appraiser complete a sales comparison approach, but a rental approach, an as is value, as repaired value, repairs needed, and a cost approach value. Appraisal cost can vary depending on the location of the property, size of property, property type, and if the appraisal needs to be rushed.
Residential Vs. Commercial Hard Money
Both in residential and commercial hard money loans, much of the focus is on the value of the property but a borrowers credit history is always taken into consideration. Typically on a commercial hard money loan more information is requested from a borrower and they require more money down then a residential hard money loan.
Borrowers Who Can Benefit from Hard Money Loans
Hard money loans are utilized by any individual or company who needs capital within a short period of time for any real estate purchase or refinance. Generally suited for real estate investors who often need quick access to capital, allowing them to purchase a property, fix it, and sell it in the shortest time possible.
Compared to banks and other traditional lenders, hard money loans typically have higher interest rates. However, borrowers who have credit issues and/or require fast access to funding consider hard money or private money the only option.
In most circumstances, hard money lenders issue funds as little as 7 days, whereas banks a month or on commercial properties as long as 90 days depending on the complexity of the transaction.
Term of Loan
Both residential and commercial hard money loans are set up for short periods of time, usually 1-3 years. Traditional mortgages, meanwhile, often have a 10-30 years term.
Hard money loans are also available for cash out refinance to provide the capital needed for renovations and repairs to their property so it can be sold immediately for a profit.
Hard money also suits real estate investors who may not have good creditworthiness, which precludes them from having access to bank loans and traditional mortgages. With the right capital investors can succeed with hard money lenders as without they would never obtain the funding needed.
Different Types of Properties for Collateral
Properties that can be used as collateral typically include single family homes, duplexes, tri-plexes, Quads, 5+ multi-family residential, commercial properties, developments, retail properties, industrial properties, etc. Nonetheless, don’t be discouraged when a hard money lender turns you down despite having an eligible collateral as each lender has their own guidelines and may also not lend in your state.
In addition, hard money lenders do not lend against owner-occupied properties and many times one must place the property under a corporation and not in a personal name.
Eligibility rest on a combination of the asset, borrowers experience, borrowers credit score, and the value of the property. Lenders may ask to complete a loan application and pull your credit along with requesting to provide your bank statements and tax returns.
Regarding commercial income producing properties, it is important to provide the lender year-to-date income and expenses certified by the seller or borrower if a refinance, pictures of the property, repairs completed, property condition, rent roll, sources and uses, plans, renderings, etc.
As a borrower, and possibly for commercial loan requests the lender may ask for an executive summary to understand your business plan for a specific property and specifically looking for your exit strategy and how you can repay the loan. Your executive summary doesn’t need to be long. An executive summary is mostly required for commercial loan requests. A good rule of thumb is to explain in the first paragraph the property address along with the reason why you are seeking funding. While progressing it is important to include a brief bio of the principles professional experience and continue and ending with your exit strategy or strategies. It is important to show to the lender that you have thought out the loan, project, and you have contingencies in place.
Get in touch with us. We don’t provide denials, only approvals. Get funding in as fast as 24 hours after receiving and reviewing the completed appraisal. (800) 611-2747 – Call us today for a free consultation. We provide you the capital you need fast.
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