The Difference between Bank Commercial Loans and Private Hard Money Lenders

The Challenge: Obtaining a Commercial Real Estate Loan for Multifamily Properties
September 10, 2017
The Difference between Bank Commercial Loans and Private Hard Money Lenders
September 10, 2017

The Difference between Bank Commercial Loans and Private Hard Money Lenders


There is a vast difference between commercial loans obtained from banks and those acquired from private hard money lenders. Two of these distinctions are speed and access.

The term “Hard Money Lenders” has led to varying discrepancies regarding this type of loan and who actually funds them. We would like to set the record straight. Hard money loans are neither “hard” to get nor are they funded by “hardened” criminals. What they are: Loans based on collateral, otherwise known as hard asset-based loans. Private hard money lenders are individuals or a group of individuals that have decided to make investments in this type of lending. There are several characteristics that make this type of funding quite unique and very different from commercial loans that are acquired from institutions such as banks.

Banks offer programs that are guided by government agencies such as Fannie Mae, Freddie Mac, FHA, and VA as well as some in-house programs. They are heavily regulated and funding is determined by credit scores and finances including debt-to-income (DTI) ratios. Borrowers must be able to document their income and expenses, making it sometimes difficult for self-employed individuals and small businesses to acquire a loan. Eligible properties include single family homes and some commercial properties.

On the other hand, private hard money lenders are not guided by the regulations and red tape that banks are under. These types of loans are based on collateral and criteria such as loan-to-value (LTV) ratio. These types of lenders are interested in the property and project and often acquire an exit strategy which is how you plan to obtain the needed funds to pay the loan back either through a sale after a renovation, obtaining a traditional loan, or acquiring tenants, to name a few of the many exit strategies. Credit does not play such a dominant role as the property and collateral, making it easier for self-employed individuals, small businesses and those with damaged credit to obtain funding. Private hard money lenders are more apt to make fix and flip loans, bridge loans, construction loans and mixed-use property commercial loans.

How do Individuals and Businesses use Hard Money Loans?

A real estate investor looking to purchase a property in need of rehab may get a hard money commercial loan in order to obtain quick capital for the purchase and renovation funds. Once completed, they may turn to a traditional loan and get funding based on the properties new and improved value, paying off the hard money loan which often has no prepayment penalties attached to it. Home owners may decide to purchase a new property before their old home sells. A hard money bridge loan will offer them a bridge from one asset to another and give them the time they need to sell their home without losing out to another offer on their new home that was not contingent on a sale.

One of the main reasons individuals choose hard money loans is because capital is available in a matter of days instead of weeks to months.
At Level 4 Funding we’ve established a working relationship with numerous private and group hard money lenders. With our vast network of investors, we can often say “Yes” when banks have said “No.”

mark-gowlovech-150x150Dennis Dahlberg
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177

Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701   

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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.

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