If you are not able to qualify for a traditional commercial loan then you might be interested in looking into alternative lenders. Hard money commercial loans could be the solution that you are looking for.
Hard money commercial loans are non-traditional loans that are funded by private individuals or private investment groups. Often times these loans are sought out when a business is unable to qualify for a traditional loan due to poor credit or lack of credit. But there can also be other reasons to use a hard money loan such as the number of preexisting loans or the time in business. Investors also use hard money loans when time is critical to making a purchase. Being that the loan is not from a traditional lender, hard money commercial loans process much more quickly.
The factor that many borrowers find most attractive about a hard money loan is that the loan is asset based. This means that the deciding factor for loan approval is not the creditworthiness of the borrower but the value of the collateral for the loan. In most cases that collateral is the property being purchased. One other factor to consider when selecting a hard money loan is the loan to value rate. Because the lender wants to be certain that the collateral is always worth more than the balance on the loan, the loans are normally only granted for about 70% of the value of the property. This means that you are going to need to find the additional 30% of the purchase price in cash or by some other means. This can be a drawback for some buyers.
The Cost of hard Money
Because hard money commercial loans are not coming from a bank, they are not governed by the same rules and guidelines that lending institutions must abide by. That means that a hard money lender is basically free to charge whatever interest rate they feel is fair or will be accepted by borrowers. In most cases the interest rate is a good bit higher than what traditional lenders are charging. In some cases the rates can be as high as 30% but it varies due to the level of risk associated with the loan and the borrower.
The Reasons and Advantages to Use Hard Money
It is very true that hard money can come at a very high price. But it is also true that hard money lenders fill a need in the lending industry. Hard money is a legitimate option for a business which is new or has little credit history. It is also a viable solution for a company which is trying to build or rebuild credit but is still unable to obtain a traditional commercial loan. In addition, hard money loans can be requested, granted and funded much more quickly than a traditional loan. If you need money and need it quickly, then paying the higher cost of a hard money loan could be well worth the increased interest rate. You would always have the option to refinance with a traditional loan once the time constraint is behind you. Hard money loans are a great tool for investors and businesses as long as they are used wisely.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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