Commercial Hard Money Loans
Commercial properties refer to buildings or land that is purchased with the intent of making a profit. The profit is made either from rental income or capital gain; for example, the buyer can purchase the commercial property and rent out suites within it to business owners and collect the income to make a profit, or they can use the property for their own business venture and make a profit from the goods or services they sell. Examples of commercial properties include medical buildings, office centers, restaurants, grocery stores, shopping malls, retail stores, warehouse, hotels, and even multi-family houses.
For real estate investors, commercial properties can be a sound investment, as they have the potential to bring in a substantial amount of money, either in rental income or capital gains. However, the cost of a commercial property can be exorbitant. For investors that have poor credit ratings and cannot secure traditional financing, who cannot secure any other form of funding, or who do not want to take out a traditional mortgage loan, a commercial hard money loan is a viable option.
What is a Commercial Hard Money Loan?
In order to understand what a commercial hard money loan is, it’s important to understand what a standard hard money loan is. Hard money lending is a form of short-term lending, as the terms on these loans are much shorter than standard mortgages. Additionally, the funding that this type of loan provides is secured by a real asset, such as the property that a real estate investor is using the financing to purchase. Hard money lenders consider the loan-to-value ratio instead of the credit history of the borrower. The loan-to-value ratio refers to the amount of funding that the investor is attempting to secure compared to the value of the asset; in the case of a commercial hard money loan, that asset would be the commercial property. The lower the loan-to-value ratio, the easier it will be for a borrower to secure a loan; however, the higher the loan-to-value ratio, the more difficult securing a loan will be.
Commercial hard money loans involve securing financing from a hard money lender for the specific intent of purchasing a commercial property. As mentioned, the commercial property that a real estate investor is interested in purchasing will be used as collateral. If the loan is approved and the investor defaults on the loan, the lender can repossess the commercial property and sell it to recoup the money they lent to the borrower.
The Benefits of a Commercial Hard Money Loan
For real estate investors, commercial properties have the potential to be a good investment; however, the upfront price of the property can be exorbitant. A commercial hard money loan can provide real estate investors with fast access to financing, as these short-term loans are usually approved very quickly; usually within two weeks, compared to a traditional loan, which can take 45 days or longer to complete. Additionally, credit isn’t a factor for securing this type of loan; rather, the value of the commercial property will determine if the loan will be approved. While interest rates are higher than traditional mortgages, the real estate investors can repay the lender quickly with the income that the property provides; from rent collected by tenants or from capital gains. Furthermore, commercial hard money loans tend to be more flexible than traditional mortgages, as lenders are often willing to adjust things like repayment terms and other aspects of the loan in order to meet the specific needs of the borrower. For real estate investors who are interested in purchasing commercial properties, commercial hard money loans are a viable option.
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