While commercial hard money loans might sound as if they come out of a Mafia movie, there is nothing dangerous or especially risky about being granted one of the many commercial loans that are on offer by the different independent financial institutions.
What are Commercial Hard Money Loans?
The word ‘hard’ can be misleading for many people who are applying for this sort of financing. All that it means is that the loan is guaranteed by an asset or a piece of immovable property. The loan will be granted on the strength of the value of the asset in question. Many developers use these type of loans when they are attempting to develop a piece of land into a commercial property that has investment potential as well as the potential of future earnings that will more than cover the loan amount.
The value of these loans is that they are usually funded by private investors. It is worthwhile finding a company who is able to match up potential investors to loan applicants. They will ensure that the loan is completely legal as well as being secured by the property itself and not the personal assets of the owner. Most of the private investors in America today are likely to be private firms who consider that issuing commercial hard money loans is a way of doing business that guarantees them a substantial return on investment. These loans are not usually granted over an extended loan term.
This type of loan is not like a conventional mortgage that is repaid over 30 years. The term is usually between 1 and 5 years and the interest rates are much higher than a conventional loan. While the top end of the scale of interest rates can reach up to 15 % it is still a way of obtaining finance for an investment without having to wait for months or go through an extensive process of paperwork and credit checks.
It is always wise to remember that commercial hard money loans will not cover the full value of the property and it is unusual to find any commercial hard money lender that will over about 60% of the value of the property. If you are buying property then you will have to fund the difference from another source or be prepared to fund it yourself. Commercial hard money loans are granted based on a logical and achievable plan to pay the money back on time and most commercial hard money lenders will need to see a considerable amount of property related experience.
They will not be inclined to lend money to first time investors, unless the risk is very low. Commercial hard money loans are a solution to investment opportunities that many banks have refused due to the economy.