Commercial Mortgage Lenders - Hard Money


by jeff rauth - Date: 2008-09-05 - Word Count: 460 Share This!

Commercial hard money lenders fill a giant void in the commercial lending industry.  Most commercial lenders are in one way or another tied to banks and their traditional underwriting standards.  Commercial hard money lenders are not dependant on banks and fill the void between what banks will not fund and deals that just make no sense at all. 

Most hard money loans do make sense from both the borrowers and lenders perspective.  From the commercial hard money lenders view, they rely primarily on the equity of the property to assure them that in case of borrower default they will get their capital back.  For example most hard money deals are capped at 60% loan to value.  In other words if your property is worth $1,000,000 the max they will lend would be $600,000.  Also, most hard money lenders will use a deflated value to further ensure their position. 

They do this primarily by using a shorter time period to sell on the appraisal than normal.  Most appraisal companies will use a 9 to 12 month marketing period to dispose the property.  Hard money lenders will typically use a 3 to 6 month time frame which has a significant impact on value.  As a result a 10%-30% reduction is common.   

Commercial hard money lenders will also be very interested in the borrowers exit strategy.  Meaning at the end of the 12 - 24 (when their loan balloons) month how is the borrower going to pay the lender back?  Are they planning on selling the property?  Will they refinance the debt with a conventional loan?  How is the borrower going to accomplish this if they can't do it now?  That is really the question.

If the borrower is not in the position to get a bank loan now, what is the chance that they will be able to in a year or two?  Answers often include pulling cash out of the property to renovate and give more time to lease up.  On owner occupant transaction it may be a business turnaround situation and or it may just be a matter of cleaning up the borrowers personal credit score.  Though this alone is rarely satisfactory to the lender.  Bottom line is the commercial hard money lender will have to buy into the plan. 

From the borrowers perspective the commercial hard money lenders offer a few major benefits not found with banks.  Speed of execution both in terms of a decision to fund and time to close.  It's not uncommon for a commercial hard money deal to get done in 2 to 3 weeks.  And because the borrower is often dealing with an individual decision maker, rather than a bank committee, they can get the initial go or no go in a matter of hours.  


Related Tags: bridge loans, commercial hard money lenders, commercial private money lenders

Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out commercial mortgage brokers or commercial real estate loans or commercial hard money lenders

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