Top 5 Advantages of Getting a Commercial Hard Money Loan
Sep 23, 2016
The commercial real estate industry has a variety of property types and even more variations of borrowers who own or are looking to own them.
With such a wide array of borrowers and properties, not everyone’s financing needs are met by conventional lenders. Conventional commercial lenders are known for being risk-averse and having strict guidelines and lending parameters. They are sometimes referred to as having a Goldilocks syndrome – not too much, not too old, not to risky and not without supporting financials. They want their loans to be ‘just right’.
So what is a borrower to do if they find themselves outside the conventional lending box? Does it mean they are out of luck and should just accept their financing fate? Absolutely not.
Conventional lenders have their target markets where they can offer some amazing loan programs. But commercial hard money loans have their advantages as well. The beauty of a commercial hard money loan option is they are not limited in their lending scope and are available to all types of borrowers. Despite an erroneous misconception, hard money lenders are not loan sharks. The loans they fund are not only for those borrowers who have their proverbial backs against the wall,
Hard Money Loan Advantages
(1) Quick Loan Funding Conventional commercial real estate lenders can take 60 days, on average, to process a loan, from pre-analysis, to loan funding. Depending on how complicated the loan request is and how fast a borrower is able to provide needed information, some conventional commercial lenders can even take months to fund a borrower’s loan request.
On the other hand, commercial hard money lenders can provide alternative funding in as little as 10 days. Hard money lenders are often private money sources that don’t require a chain of “sign-offs” or loan committees to approve a loan file before they are willing to provide financing.
(2) Flexible Loan Terms In conjunction with the fact that many commercial hard money loans are funded using private money sources, hard money lenders can be flexible with their loan terms and can tailor them to be beneficial for both the borrower and themselves. Hard money lenders are not restrained by regulatory requirements, shareholders, and red tape.
(3) No Prepayment Penalty with Hard Money lenders. Private Commercial Lenders do not impose restrictions on a borrower for paying back the money they borrowed. A Borrower can pay back some or all the money they borrowed, at any time during the loan term without incurring a prepayment penalty.
In contrast, conventional commercial real estate lenders impose prepay penalties because they want the greatest utilization of their money, in the form of receiving interest payments and/or fees. Moreover, the commercial real estate loan made to a borrower may have been added to a pool of other loans or securitized. When a lender does this, the group of loans becomes a tradable financial instrument and the lender is promising a level of returns to the investor who purchases their loans. The prepayment penalty could therefore be used to keep the lender’s “promise” to an investor intact.
(4) Fewer Loan Requirements Anyone who has every applied for a conventional commercial real estate loan knows that the application packages can be quite cumbersome and overwhelming. Lender’s need to perform their analysis on the subject property as well as the borrower(s). This would also include any related, Corporations, LLC’s or Trust’s.
For commercial hard money lender’s the application process can be streamlined to make the overall loan process easier. There are even some hard money lender’s that are primarily asset based lenders. This means that the lender is mainly concerned with the equity in the subject property and not the property’s ability to generate income or the borrower’s financial history.
(5) Funding for a Variety of Real Estate projects Last, a huge advantage of commercial hard money loans is the wide spectrum of properties and real estate projects, which can be provided financing. Conventional commercial lenders tend to have their niche segments they want to lend in. On the other hand, hard money lenders can provide financing for virtually any property – even those with interesting stories or that require a bit of imagination.