Mar 12
8
Commercial Hard Money Loan Situations: Why and When You’d Need It
A commercial hard money loan is really an unconventional commercial real estate loan that traditional banks just don’t provide us with. This kind of commercial financing has been used for more than half a century. Such hard money loans will often have an initial lien on commercial property. When your hard money loan includes a secondary lien, it’s called mezzanine financing.
You will find three financing choices for most commercial real estate situations: traditional banks, intermediate loan companies and hard money loan providers. The main rationale for any small company thinking about a commercial hard money loan is the fact that traditional or intermediate commercial financing choices are generally not viable.
In individuals situations where traditional banks and intermediate loan companies both say “NO”, after that it makes good business sense to understand more about under what terms a hard money commercial loan may be available to your company. Many viable small company projects could be funded ONLY using a hard money loan provider. Before accepting “NO” from the loan officers at traditional banks and intermediate loan companies just because the “FINAL ANSWER”, a prudent small company customer must decide if their hard money loan officer will say “YES”.
Commercial hard money loans are usually completed more rapidly than regular commercial loan. In comparison to traditional bank business loans, commercial hard money loans will normally involve a greater rate of interest (prevailing selection of prime rate plus 4-8% for typical situations), greater costs and shorter-term financing (1 to 3 years). However, because many hard money loans offer interest-only terms as well, the obligations could be less than a completely-amortized loan having a lower rate of interest.
Three common commercial financing situations using hard money financial loans are referred to below.
COMMERCIAL HARD MONEY LOAN SITUATION Number One:
Low Credit Ratings
Most traditional commercial loans have very strict standards for acceptable credit ratings through the guarantors for any commercial real estate loan. Hard money loans tend to be more flexible and low credit ratings are generally acceptable.
COMMERCIAL HARD MONEY LOAN SITUATION Number Two:
Have to Obtain Commercial Financing Rapidly
Traditional commercial loans will usually require several several weeks to get funded. In many cases, hard money loans can be completed inside a couple of days in certain situations. This difference is going to be critical if you need commercial financing within a relatively short time-frame.
COMMERCIAL HARD MONEY LOAN SCENARIO 3:
Special Small Company Situations Not Easily Understood by Traditional Banks and Intermediate Loan Companies
Personal Bankruptcy; Foreclosures; Special-Purpose Properties; Tax Liens Deficits Negative Net Worth; Principals With Less Than 1-Year’s Business Experience; Environmental Requirements (e.g.: Phase I)
For each one of the three situations referred to above, a commercial hard money loan calls for shorter-term financing, greater costs and greater rates of interest than the usual commercial loan from the traditional bank or perhaps an intermediate loan provider. However, the critical point which mustn’t be overlooked is the fact that in many cases involving these sorts of situations, commercial financing requests would have already been rejected by either traditional banks or intermediate loan companies. It’s under these conditions that a commercial hard money loan transforms into a practical and viable solution for a lot of small company proprietors.