Hard Money Vs Soft Money Loans
Oct 05, 2016
A Basic Overview
Commercial hard money loans and private bank loans are the two most common ways of obtaining money to invest in commercial real estate. Essentially, both these loans work on the same principle – they ask you to pledge your assets as collateral for a loan.
However, both these loans differ in the way they are managed and implemented. Commercial hard money lenders in NYC have certain advantages and disadvantages compared to private banks, and loans from reliable hard money lenders can be excellent alternate sources of funding.
Commercial Hard Money Loan Basics
In the case of a conventional bank loan, funds are transferred from the bank to a business owner or individual in need of money. Hard money loans, on the other hand, are transferred from an investor to a business owner.
Hard money loans do not need to conform to the standards specified by any lending body. They’re usually processed as per an agreement or understanding between the investor and borrower.
While private banks invariably check credit ratings, time in business, and other financial aspects of the borrower, commercial hard money lenders in NYC don’t require financials. The focus is instead on the value of the property pledged.
This is the reason why hard money loans are a great alternate source of money for people who have bad credit scores, a history of bankruptcy, low business turnover and other unfavorable factors that make private banks reject their loan application.
Ease In Obtaining The Commercial Real Estate Loan
If your property is worth more than 30 percent of the loan amount, hard money loans are easy to obtain. Commercial hard money lenders NYC usually offer up to 65 percent of the pledged property’s value.
Additionally, the processing time for hard money loans is much quicker than private banks that take a lot of time to approve, process and sanction your loan.
Commercial Hard Money Loan Interests And Expenses
Interest on hard money loans is usually much higher than bank loans. So, by the time you completely repay the loan, you end up paying much more than the amount you borrowed. If you borrow from private banks, you won’t incur as much expense.
However, hard money loans are slightly more flexible. They allow you to pay only interests in the initial months. You can pay the principle amount in bulk later. Since there are no standard rules, flexibility is slightly higher.
If you’re in need of funding and lack the time or credit score for a traditional bank loan, hard money loans may be the answer. For more information, learn about how hard money loans work and apply online today!