Updated: Sep 3
Are you an investor looking for financing to purchase or refinance a commercial property but have been turned down by traditional lenders? If so, then you are reading the right blog post. Unlike traditional lenders or bank loans based on credit scores and income verification, they are primarily concerned with the asset's value. This innovative loan program offers opportunities beyond what is available through traditional commercial loan programs and can benefit borrowers who may not qualify for other lending options. In this blog post, we will explore the benefits of working with Mortgage Brokers and how they can help you secure funding for your next investment project.
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Introduction to Commercial Hard Money Lenders?
Commercial hard money plays a crucial role in the real estate financing landscape, offering an alternative to traditional loans for investors seeking funding opportunities.
A commercial hard money loan can differ from traditional bank loans in several key ways, including faster approval and funding times, flexible loan terms, and more accessible qualifications.
For instance, a spec home investor looking for quick funds could greatly benefit from partnering with a commercial hard money lender. These professionals offer creative loan programs designed with investors' unique needs in mind – ideal for those working on time-sensitive projects or requiring financial flexibility outside of standard lending practices.
The Role Of Commercial Hard Money Lenders In Real Estate Financing
These lenders cater to borrowers who need quick funding because property owners may or may not qualify for traditional bank loans due to low credit scores, incomplete documentation, or unique property types.
By providing asset-based lending solutions with flexible terms and faster approval times, commercial hard money lenders help investors seize time-sensitive opportunities that could otherwise be lost due to bureaucracy or strict lending regulations.
For example, an investor might need immediate funds to close rapidly on a distressed commercial property before other potential buyers can swoop in.
Understanding Hard Money Loans
Hard money loans offer a unique financing solution for investors seeking spec home financing. These loans are short-term in nature, typically ranging from six months to three years, and are secured by real estate assets such as commercial properties or investment homes.
With a hard money loan, a borrower can access funding quickly due to their streamlined approval processes and minimal underwriting requirements. For instance, an investor looking to purchase a fix-and-flip property may receive funding within 7-14 days after submitting their loan application.
The main advantage of using a hard money loan is its flexibility—these types of loans enable borrowers with poor credit scores or irregular incomes to secure financing that would be otherwise difficult to obtain through traditional channels.
However, it is essential for investors to understand that a commercial hard money loan comes with higher interest rates than conventional mortgages due to their inherent risk profile and short-term nature.
What Is A Hard Money Loan?
A hard money loan is a short-term financing option that relies on the value of the property rather than the borrower's credit history, making it a flexible choice for investors.
How Does A Hard Money Loan Work?
A hard money loan works by providing investors with quick access to funds for purchasing or refinancing a property, particularly when traditional financing options may not be available.
Unlike conventional loans that focus on the borrower's creditworthiness and financial history, hard money loans are asset-based, primarily relying on the value of the real estate itself.
For example, an investor looking to fund a spec home project might turn to a hard money lender instead of a traditional bank due to the flexible terms and expedited timeline these lenders offer.
The process typically involves submitting an application with details about the property and the requested loan amount. Once approved, funds can be disbursed in as little as 2-3 weeks—significantly quicker than traditional mortgages that often take months for approval.
Benefits And Drawbacks Of Hard Money Loans
Hard money loans offer numerous benefits and drawbacks for real estate investors. One of the primary benefits is that they provide quick financing for investment properties without requiring the same level of creditworthiness as traditional loans. Fannie Mae Multifamily Mortgages can take months to close in some cases. Hard Money is an ideal alternative for deals that do not have that much time to close.
Also, this makes them an ideal option for those who may have poor credit or lack a lengthy financial history.
However, there are also drawbacks to consider when it comes to hard money loans. Interest rates tend to be higher on private money mortgage loans than on traditional loans, which increases overall borrowing costs.
Borrowers generally have to put down 25-35% on purchases or 65-75% on refinances and cash-out refinances. Some asset classes require larger downpayments, it's important to speak to your broker to find out the current LTV's.
Also, since these types of loans are typically short-term, borrowers must have a viable exit strategy in place before taking out the loan to ensure they can repay it when due.
Exploring Commercial Hard Money Loans
A Commercial hard money loan is specifically designed for real estate professionals and investors looking to purchase or refinance commercial properties. What makes these types of loans different from other financing options is that they rely heavily on the property's value rather than the borrower's bad credit history.
When it comes to commercial properties eligible for hard money loans, almost anything goes retail spaces, office buildings, warehouses, condos, single-family homes, residential subdivisions & more!
Whether you're a seasoned investor or new to real estate investing altogether, seeking out creative lending solutions can help you secure funding for investment projects where banks won't lend or be approved in time.
One example of a successful commercial hard money loan project involved an investor who secured $5 million in just 10 days using a bridge loan to acquire an industrial building in New York worth $10 million.
The short-term hard money loan allowed the investor to complete renovations quickly before refinancing into a longer-term conventional loan at a lower rate after increasing its value by 50%.
What Makes Commercial Hard Money Loans Different?
Commercial hard money differs from traditional commercial loans in several ways. Firstly, they are more flexible and innovative, allowing borrowers to access financing for properties that don't meet the strict requirements of big banks or other traditional lenders.
These alternative lenders often lend on special-use properties such as gas stations and car washes that traditional lenders avoid due to their unique nature.
Additionally, commercial hard money loans focus primarily on the property's value rather than the borrower's or income documentation like tax returns.
These loan providers won't deny funding based merely on a borrower's credit score since their interest is primarily tied up with collateralizing using real estate assets as opposed to analyzing an individual’s perceived risk associated with their past financial histories.
Types Of Properties Financed By Commercial Hard Money Loans
Commercial hard money loans can be used for a variety of property types, including multifamily buildings, mixed-use properties, office buildings, retail spaces, industrial facilities, storage and warehouse spaces, hotels and motels, mobile home parks and even vacant land zoned for commercial use.
These loans may also cover special-purpose properties such as gas stations or car washes. With creative financing options available through direct private money lenders like Bennett Capital Partners, borrowers can find funding solutions that cater to their unique needs without the stringent requirements demanded by traditional commercial lenders.
The Process Of Securing Hard Money Loans
To secure a hard money loan, borrowers typically go through a pre-approval process that involves providing basic information about the property and their credit history, with an average funding time of just a few days to one week.
Pre-approval Process: What To Expect
Before securing a loan, you will have to go through the pre-approval process. This involves submitting an application and providing basic information to the lender, such as the guarantor's personal information, property information and drivers license.
Unlike traditional lenders, they look at the property's value instead of your credit history when determining eligibility. After assessing the asset's worth and feasibility of the project, the lender will present you with various loan scenarios that fit your needs best.
It's important to note that due diligence is crucial during this phase since these hard money commercial loans are riskier than traditional loans. Make sure you're working with a reputable broker who provides honest information about their fees and interest rates upfront and answer any questions before moving forward with signing any agreements.
Average Funding Times For Hard Money Loans
Bennett Capital Partners offers one of the fastest funding times in the industry, with most Commercial hard money closed within 14 days. Compared to conventional or portfolio bank loans, which can take months to process, working with a hard money lender like Bennett Capital Partners means investors can secure the financing they need quickly and without extensive underwriting requirements.
This is especially important for those looking to invest in time-sensitive opportunities or who want to avoid foreclosure on their current properties. With an asset-based loan like a hard money loan, borrowers don't have to worry about their credit history as much as they would with a traditional bank loan – this makes it an ideal solution for those who have bad credit or less-than-stellar financial histories.
Understanding Loan Terms And Interest Rates
As an investor, understanding loan terms and interest rates is crucial when securing financing for your real estate investment property. Hard money loans typically have shorter loan terms than bank term loans, ranging from 6 to 36 months, with higher interest rates due to their riskier nature.
It's important to carefully review the terms of the loan offer before accepting it since these types of loans usually require a larger down payment and balloon payments at the end of the term.
Direct private money lenders can provide more flexibility in structuring loan terms tailored to meet your needs as an investor direct lender.
Choosing The Right Commercial Hard Money Lender
Consider several factors when selecting a commercial hard money lender, such as their experience in the industry, transparency and honesty in lending practices, reputation in the market, and the types of properties they finance. For example, Bennett Capital Partners has an information page as well as a complete BIO of the Principal Broker, Philip Bennett.
Factors To Consider When Choosing A Lender
Choosing the right commercial hard money lender is crucial for investors looking for spec home financing. Some factors that should be considered when selecting a lender include their level of experience and reputation in the industry, transparency with fees and loan terms, and overall communication skills.
Additionally, it's important to look at the types of loans offered by potential lenders as well as their eligibility requirements. The website offers flexible loan options with competitive interest rates specifically designed for real estate investment properties beyond traditional loans.
Ultimately, choosing a trustworthy commercial hard money lender can make all the difference in securing successful financing for spec home investments.
The Importance Of Transparency And Honesty In Lending
Transparency and honesty are vital qualities to look for when choosing a commercial hard money lender. You want a lender who's upfront about their loan terms, interest rates, fees, and prepayment penalties.
For instance, some lenders may disclose everything they need from you in advance while others might keep you guessing till the last minute. Additionally, some lenders may promise low-interest rates only to hike them up later on in the lending process.
How To Spot A Reliable Commercial Hard Money Lender
When looking for a reliable commercial hard money lender, it's important to check their website and see if they offer a range of loan programs for both residential and commercial properties.
A good mortgage broker will find the best lender and find the right loan program that fits all their needs, whether it's bridge loans or creative commercial real estate loans for purchase or refinance needs.
Additionally, success stories of clients who have used their loan programs should be featured on the website as evidence of their expertise and trustworthiness.
Information about how to get a commercial real estate loan in six steps is also crucial to ensure transparency and understanding of the lending process. Other factors include emphasizing flexibility with loan requirements and having a mortgage broker run the numbers.
Conclusion: The Future Of Commercial Hard Money Lending
In conclusion, hard money lenders offer a valuable alternative to traditional financing for investors looking for spec home financing. Private money loan programs can help unlock opportunities for those with low credit scores, controversial business dealings or risky properties. Commercial hard money loans in Florida are typically used to finance real estate investments, such as fix-and-flips, bridge loans, and short-term loans.
With the flexibility and speed of these loans, borrowers are able to secure funding quickly without the lengthy underwriting process of traditional banks.
Trends In Commercial Hard Money Lending
Commercial lending has grown in popularity over the years, especially for investors looking to finance spec homes. One significant trend that emerged in recent times is the accessibility of commercial hard money loans.
Small business owners and real estate investors who may not qualify for conventional loans can now easily secure a commercial loan from private or alternative lenders.
Another trend worth noting is the rise of small-balance commercial loans. These loan products cater specifically to borrowers seeking lower loan amounts ranging from $200,000 to $5 million.
They offer advantages such as less rigorous underwriting requirements, streamlined processing, and greater product selection with more flexibility than traditional banks or other large-scale lenders.
How Hard Money Lenders Are Shaping The Real Estate Market
Hard money lenders are playing a significant role in shaping the real estate market by offering innovative loan programs that go beyond traditional loan options.
These private lenders are providing creative commercial real estate loans for both purchase and refinance needs, catering to borrowers who may not qualify for traditional commercial loans due to various reasons such as low credit scores or inability to show income through tax returns.
By doing so, they are helping investors finance their spec home projects with ease and flexibility. Small-balance commercial loans offer advantages such as less rigorous underwriting requirements, a streamlined underwriting process, and greater selection of products with more flexibility.
What is a Hard Money Lender?
They are private lenders who provide short-term loans based on the value of real estate that has been collateralized for the loan. These loans are typically used for commercial real estate transactions and are often easier to qualify for than conventional or portfolio loans.
How Do Commercial Hard Money Loans Work?
They work by providing borrowers with immediate funding based on the value of the commercial real estate being used as collateral. The loan amount is usually a percentage of the property's quick-sale value - the price that the property would likely fetch in 30 to 90 days on the market.
What Types of Properties Can Be Financed by Commercial Hard Money Loans?
They can finance various types of properties, including office buildings, retail properties, industrial properties, multi-family residential buildings, and undeveloped land. The key is that the property must have a clear market value that can secure the loan.
What Are the Benefits of Using a Commercial Hard Money Lender?
The benefits include quick approval and funding, flexible terms, and loans based on property value rather than credit score. These lenders can often close deals faster than traditional lenders, making them a popular choice for real estate investors and developers.
What Are the Risks of Using a Hard Money Lender?
The risks include higher interest rates, potential prepayment penalties, and the risk of losing your property if you default on the loan. It's important to thoroughly understand the terms of a hard money loan before proceeding
Philip is the owner and Licensed Mortgage Broker at Bennett Capital Partners, Bus. NMLS # 2046828. He earned his degree in Accounting and Finance from Binghamton University and holds a Master's Degree in Finance from NOVA Southeastern University. With more than 20 years of experience, Philip has been a leader in the mortgage industry. He has personally originated over $2 billion in residential and commercial mortgages.
Learn more about Philip Bennett's background and experience on our Founder's page. Whether you're a first-time homebuyer or a seasoned real estate investor, our team is here to help you achieve your real estate goals. Don't wait any longer, contact us today and let us help you find the right mortgage for your needs.
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