Using Hard Money Loans for Commercial Real Estate Investments
Many hopeful borrowers tend to stick with trying to obtain traditional loans from banks and credit unions. While there’s nothing wrong with that, sometimes your best bet is actually through alternative methods like hard money lending. Consider a few points on why this might be the best route for you as a commercial real estate investor.
How Do Hard Money Loans Work?
A hard money loan is a short-term asset-based loan that is secured by real estate, and issued by private investors instead of banks. A hard money loan can last up to five years, but typically begins as a one year term with the potential to extend. There are several ways a borrower can pay on this type of loan, including monthly payments and/or a balloon payment when the term ends. What makes hard money loans unique is that the amount borrowed is based on a property’s value, whether it be one already owned by the borrower or one they hope to attain. Because of this, a hard money loan is typically easier to be approved for because the lender is less interested in the borrower’s credit.
When Should Borrowers Use a Hard Money Loan?
Most borrowers in the commercial real estate market need quick funding to acquire a property over competitors, which is usually the main reason hard money lending is sought after. Approval for a hard money loan is usually obtained in a matter of days, whereas a bank may take a month or even longer. Of course, a conventional bank loan may not be an option for you even if you do have time to wait. Foreclosures and credit issues can make being approved almost impossible, which is what makes hard money lenders who are more interested in property value, a great option.
Find a Loan for Commercial Real Estate
Perhaps the easiest way of finding a lender to work with is to do some google searches for lenders in your area. If you’re one who prefers social contact and personal recommendations, visit a local real estate investor meeting and get involved that way. You’ll find that many lenders only concentrate on certain property types, so you may have to specify that you’re seeking commercial properties. Make sure you have a plan prepared for how you intend to pay your loan off. Finding a good hard money lending investor to work with on your current project may also open doors for more opportunities in the future.