Due to the fact that traditional commercial lending has become more restrictive, there has been a rise in hard money loans for commercial development and purchasing. However, many borrowers jump at the chance of these loans without truly understanding how the operate. Here are some secrets of commercial hard money loans that will help you to be prepared.
Secret #1: The interest rates are going to be higher. One of the catches of having ease of access and speed of these loans is that you are going to end up paying more for it in the long run. Sometimes, this might be a significant amount.
Secret #2: Commercial hard money loans are typically high risk. Overall, these types of loans have a default rate that is above average. Because the requirements for receiving the loan are much lower, it is easier for borrowers to get in over their head with terms and amounts that they cannot pay back. Taking such a risk is not necessarily bad, as long as you know what you are getting into, but many borrowers do not enter into the contract properly prepared and end up losing their property because of it.
Secret #3: Commercial hard money loans are not bridge loans. Anyone who tells you that they are the same might not understand the differences between the two. Bridge loans are often granted for commercial properties that are not yet finished or do not quite yet qualify for a traditional loan. Hard money loans, however, are still asset-based, as with traditional lenders.
Secret #4: Hard money lenders are typically the first on the list of lien positions. Due to the nature of the loan, with it being against the value that the property would bring in a quick sale, hard money lenders are often the first creditor on the list to get paid back. If anything is left over after the hard money lender gets their cut, then the assets will trickle down as such. This is a critical fact as hard money loans are usually coupled with other, smaller loans, to cover various aspects of the overall lending amount.
If you are not able to qualify for a traditional commercial loan, or if you need the funding very quickly, then you might not have a choice other than to pursue this type of loan. Please note that hard money loans are not bad. They simply operate differently than a traditional loan and many borrowers are caught off guard by the difference. This ends up costing them dearly in either cash or their property. Commercial hard money loans can be a great solution to commercial property issues, but borrowers need to be cautious.
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.