Commercial private money can provide solutions for the potential commercial real estate buyer who might have a less-than-perfect credit score or a small down payment to put toward a parcel of real estate. These are usually the borrowers who have been turned down by the banks and other lending institutions. Wikipedia describes commercial private money as “…the reverse side of hard money lending.” Some commercial private money lenders describe themselves as being the solution for one’s borrower hard money loan issues.
Hard money lenders are those who offer a specific type of loan that is backed by real estate. Hard money lenders specialize in providing money for a very short period of time at a very high rate of interest. There are distinct similarities between bridge loans and hard money loans in that the criteria for both tend to be similar and the cost is about the same to the borrowers.
Commercial private money or hard money loans tend to have much higher interest rates than do conventional loans and they tend not to be made by banks that deal in commercial loans, nor by any other type of deposit institution. This is because these types of loans are usually higher risks since the borrower typically doesn’t qualify for a conventional loan.
When a borrower is seeking commercial private money, he or she goes to a mortgage broker or a lender of private money and explains what their are needs in terms of a loan. Two of the crucial elements of this discussion are the amount of money the borrower needs and the value of the property that is being considered for purchase. This also includes a description of the property.
After this discussion, the lender will assess an amount of “protective equity,” that exists in the property. This is a financial cushion to lighten the risk for the person who is making the loan. If the commercial private money lender decides that the value of the property is within their acceptable limits of risk, an offer will usually be made.
Hard money loans are typically made for such properties as apartments, strip malls, industrial properties, amusement parks, casinos, hotels and other types of commercial properties. It is not unusual for hard money lenders to make loans in amounts anywhere from $20K to $3 million and upward.
Although the state of the economy is slowly getting better, commercial lenders remain the only hope for some potential buyers of commercial properties who might otherwise never have a chance to purchase the property. The commercial private money lenders make it as easy as possible for the borrower to obtain funds, and there is infinitely less red tape for the borrower to go through than with conventional loans.