Commercial Hard Money Lending: It’s Different Now
In the aftermath of the credit crisis, private and hard money financing is playing a much larger and more pivotal role in the acquisition and re-positioning of many commercial properties than in years past.
Opportunistic real estate investors have been acquiring commercial properties with the use of temporary hard money and bridge loans to get projects to the point where they are finance-able with a more traditional lender.
The good news for investors is that the hard money market is more diverse than in years past and good projects can actually expect decent terms.
True Asset Based Loans and Hybrids
Below is a basic breakdown or the three main types of commercial hard money loans:
Most Expensive: A true asset-based hard money loan is one that is based on the “quick-sale value” of a property. Essentially this would be a transaction where the borrower has significant equity and little else. This option is still available from some lenders, but you can expect to pay very high rates and fees.
Moderately Expensive: These loans involve a transaction where the borrower has significant equity, but the lender reviews financials and will either order a traditional appraisal or visit the property and research comps to make their own assessment of value based on their knowledge of the local market. Typically rates for this type of project will be somewhere close to 10%.
Relatively Inexpensive: The third tier is more of a hybrid between a “bridge” loan and a hard money loan. This option would typically be used for a transaction where the client is just not quite bankable and has something that is preventing them from getting conventional financing. It could be anything from sub-standard credit, a tax lien, an out of line global debt service coverage ratio or a multitude of other glitches. Typically the rates for this type of loan could be as low as 8%.
Please visit our main site here for a more complete rundown of the various options including property types, required equity, points and a loan documentation checklist.