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Commercial Hard Money Loans – Your Absolute Last Resort To Finance Commercial Real Estate

You should consider getting a commercial hard money loan only after you have reached the conclusion that you absolutely will not qualify for a conventional commercial real estate loan. The decision, although tough for most commercial funding recipients, is pretty easy. Either let go of your commercial real estate or accept the terms provided by your commercial hard money lender.

Commercial hard money lenders are essentially your last resort to finance commercial real estate. You are receiving one thing that’s extremely useful in exchange for the relatively high cost of a commercial hard money loan. That extremely useful thing is time. Time for repairs, time for restoration or whatever the difficulties that you’ve gotta surmount are. Whether it is taking your business back to profitability, reducing your debt, time to continue leasing out your commercial real estate, or to restore your own personal credit. We’ve seen so many borrowers end up letting their egos get in the way and turning this event into something it’s really not.

The truth is that, it’s basically an act of courage since you are actually facing the issues you confront head-on and dealing with everything at once, so you are eventually able to to resolve it. And no matter how bad it really is, you can take some pride in that. A whole lot of people today have a tendency to hide from reality and let their problems overwhelm them.

Remember the old saying: “comparing apples to apples”? You simply can’t compare commercial hard money loans to traditional bank financing, which you may have been eligible for 3 or so years ago. However, these days, you’ve really gotta be realistic and compare your intended financing to your existing alternatives. Here’s what your choices are: 1) Team up with a business partner. 2) Relinquish your entire business. 3) Lose your commercial real estate to foreclosure or other mishaps.

Let’s say you own a commercial property that’s worth $2,000,000 and you owe $500,000 on it. So, you’ve got $1,500,000 in equity that you could possibly lose versus paying for high-priced commercial hard money loan. Or say you take on an incompatible business partner who just because you’re pressed for time and need the money. Now, you have at risk whatever equity you’ve got in the property, and then you create further legal difficulties by needing to dissolve your business relationship with that business partner. And if things eventually work out with your business partner, you may even need to trade off a lot more with your business partner than you would otherwise spend in fees to the lender.

Most commercial hard money lenders charge you 6% on the front-end of loans, which is clearly pretty darned expensive. When you’re dealing with terms like that and you want an additional $500,000 to bring the total loan balance to $1,000,000. You’d have to pay $60,000 in fees–in comparison with losing $1,500,000. It is pretty difficult, yet straightforward. So, please don’t let your ego get in the way of your commercial real estate financing decisions. Just face your issues head on, and deal with them one by one.

Residential Hard Money Loans Are Easier To Obtain and Can Be Approved Quicker Than Traditional Loans

For anyone seeking residential hard money loans, time is of the essence. The major reason that people seek this kind of unconventional financing is because banks simply take too long, or they are unable to meet the increasingly strict criteria that the lending institutions put forth.

There is some confusion over what the money can be used for. One reason for the confusion is that lenders and brokers use different terminology. In some cases, they mean to confuse the borrower. In others, they simply forget that everyone is not as “savvy” as they are. Below, you will find some common terms used by financers and what those terms usually mean.

Acquisition loans are hard money home loans used to purchase a property. The amount available will vary depending on the lender. It is usually a percentage of the appraised value. Commercial banks typically require that you have around 20% of the purchase price. Else, they will charge a higher interest rate. Private lenders may be able to finance the entire amount and the closing costs are usually lower.

Construction loans may be used to build a residence, but they can also be used for repairs, expansions or upgrades. Current homeowners or real estate investors may be interested in these types of hard money home loans. Conventional lenders typically require that the property in question is or will be your main residence before they will approve financing. Private lenders are usually more flexible.

Mezzanine loans typically refer to residential hard money loans that are similar to second mortgages, but the term may also be used to refer to specific kinds of business loans. Mezzanine loans are short term, typically three years or less. The funds may be used for a variety of reasons, including “buying out” a business partner. The amount that you can borrow depends on the resale value of your home or business, minus the amount of other outstanding loans, such as a first mortgage, in other words, the amount of equity that you have.

Asset based hard money home loans may be used for any purpose, as long as you have collateral or assets to “put up”. Conventional lenders refer to them as secured loans. The primary difference is the time that it takes to complete the loan, but there may be other differences. If you have collateral, private lenders may not be as concerned by your credit score. For conventional lenders, a less than perfect credit score may end up costing you thousands of dollars more, because of higher interest rates, if they will approve the loan at all.

Bridge loans fill in the gap when permanent financing solutions are in the works, but the actual purchase needs to be completed quickly. Bridges may be commercial or residential hard money loans. The funds can be used for practically anything. Depending on the lender, there may be no limit to the amount you can borrow. The funds are made available to you quickly. But, bridge loans are very short term solutions, typically not more than 6-24 months. So, you need to know where your long term financing is coming from.

Both private and commercial lenders might use other terms that you do not understand. The best advice: When you do not understand, ask for clarification. As mentioned above, some lenders simply forget that everyone is not familiar with the “lingo”. If a lender is unwilling to explain something to you fully, then you should probably seek another source for your residential hard money loans.