Hard Money and Private Money Commercial Loans

Where there’s commercial real estate, there’s usually money. While most people associate buying and selling property to make a profit with the residential market, it’s not unusual to take the same approach to commercial properties. If you’re seeking a commercial loan and you’re coming up against barriers, you might find that hard money financing is an ideal option. Choosing a private commercial real estate loan is an excellent way to secure cash quickly. If you’re ready to transform the way you approach commercial finance, let’s explore the world of private lending together.

What is a hard money commercial loan?

Overall, the core of a commercial loan is to find financing for a commercial real estate project. Unlike when you buy a residential property, you’ll sell or lease your investment to one or more businesses.

Securing a conventional commercial real estate loan through a bank is sometimes challenging when your credit isn’t perfect. Additionally, if your bank feels as though the speedy nature of your project isn’t worth its time, they may refuse to underwrite your loan. In contrast, private investors may lend you the money on the basis that you pay higher interest rates. The property you’re investing in is their source of repayment if you fail to meet your repayment obligations. However, that is a very uncommon occurrence. Private lenders prefer to only lend to you if they’re sure there’s it can be a win-win situation for everyone involved.

Who can benefit from a private money commercial real estate loan?

If your credit is lackluster or you only need a commercial real estate loan for a year, a hard money loan may be the perfect option. Many hard money lenders like to turn their capital over several times per year, so they tend to issue bridge loans that last no longer than 12 months.

Additionally, private money could act as a safety net if you need a bridge loan. When a bank approves your long-term finance agreement in principle, but it doesn’t look as though you can release finances from your current property, bridge loans are lifesavers. Depending on where you’re borrowing money from, you may expect to pay between 20% and 30% of the commercial property value to secure a mortgage. By using a bridge loan with your current property as the Loan-to-Value (LTV) asset, you can breathe easy for a while and secure your commercial property.

Is it possible to aim for both short-term and permanent financing?

Traditionally, hard money commercial loans are short-term. The private investors who are comfortable with lending on such terms do so because they expect to earn money on origination points and interest income. Most will lend for a maximum of 12 months, although some will stretch to as long as three to five years.

You may occasionally find permanent financing when you head down the private money route. In most cases, if you’re looking towards permanent financing, it may be that the way you use your hard money loan gives you access to it. For example, if it looks unlikely that you can generate the deposit for your new property, your hard money loan could push you over the finish line.

While short-term loans usually come from private sources, long-term ones come from financial institutions. The two don’t have to remain mutually exclusive, but it’s up to you to make sure they work well together.

How can you access a private money commercial loan?

When it comes to securing an institutional loan, you may not need a broker’s help. In contrast, private lenders have varying repayment terms, interest rates, and administrative fees that a broker can help you navigate. While one may accept regular repayments over a 12-month period, another will request installments and a balloon payment at the end.

Seeking the advice of a broker means you’ll cut out most of the research that goes into finding the perfect lender. Commercial loan brokers who specialize in hard money lending have a strong network of financial resources. Once they’re familiar with your current credit status and proposed investment plans, they can approach a private lender on your behalf. Using a broker means you increase your chances of finding the perfect match rather than blindly opting for the first one that’s available.

If time is of the essence and you’re worried about the impact your credit score will have on your lending options, consider a private loan. With the acumen of a broker, you can secure the finance and repayment terms you need to find success. If you’re ready to explore your private money financing options, First Capital Trust Deeds can help.