Why You Should Consider a Hard Money Commercial Loan

If you’ve been thinking about autumn on a sees date, checking out an Arizona hard money loan or finally deciding to launch a balloon mortgage deal on a distressed opt-out refinance shopping, you’ve performed some well and straightened out numerous details. After all, investing in a property like this is always a risky proposition. So a few selected points following, why not take it one step further and go for something that is a bit more conventional too?

Here are a few great reasons why:

Hard Money Commercial Loans

Hard money is a street-makers product, and these are some of the most liquid types of assets around, especially with the credit crisis still in full swing. These funds are given to distressed borrowers and private individuals, and they are secured against the primary residential portfolio of the investor/borrower. You’ll have a harder time procuring these types of instruments when the banks are no longer adding quickie loans to their standard SBA commercial lending procedures. Hard money does take more time to get into underwritten, so don’t look to me for a quick conclusion.

Short Term Vs Long Term

Short-term (12 months anywhere) is what the name implies. These normally have a minimum deferment time frame (3 to 12 months) and have no recourse issues. Long-term loans (24 months – 60 months) will also have a deferment period of at least three years, give or take. You must also have a good credit score and/or be backed by equity to be approved for these types of loans. The longer term, the better for you and the lender; however, the more difficult it will be to modify the loan in the event of a default.

Hard Money Rates

Hard money lenders tend to have a greater lack of restriction than, say, a bank would have. With this in mind, you’ll want to get your deal in as close to short term as practical. There used to be a time when 5/• 80 was the norm; 60 is still popular, but if your lender has a 70, do not just assume these are the rates you can expect. You still have to negotiate to get a lower rate.

Discount points!

Discount points come in a couple of varieties. One of the more popular is the 5/8 point discount point, which is basically 5% higher than the prevailing rate of, say, 60 points. Why would you want to pay more? That is a great question. Although, usually, the primary reason that a hard money commercial loan is the case is the return on the investment. If that isn’t the case, I would guess that a cross between 1/5 and 7/8 point discount points is the way to go.

Liquidity

In general, banks and traditional funding sources rarely lend money to commercial property owners that are able to pledge some type of collateral. Hard money is as close to that. Hard money lenders frequently lend money to significant borrowers and have minimal recourse issues.

Unless local markets, hard money lenders thrive on this unique niche and can lend money out of their own pockets and onto other borrowers. Establishing solid credit with solid income is what a hard money commercial loan requires because once the loan gets funded, there is little opportunity for a default on loan. This is not to say that hard money commercial loans are without risk because they always are, but the upside is that risk is minimized.