Commercial hard money is a type of short-term loan that has a more lenient approval process than traditional mortgage lenders, which makes it ideal for someone with credit issues. Instead of looking at your past and current financial standing, hard money lenders focus more on the value of your property that will serve as collateral.
As with any financing option, hard money comes with pros and cons. But in certain situations, its benefits far outweigh the drawbacks.
The list below explains the situations that make commercial hard money a good or even an ideal financing option.
1. You Have Credit Issues
There is some truth behind the paradox of traditional lenders: They lend money to people who have the money or at least those who are already in a good financial position. After all, their loan application involves scrutinizing your income, bank statements, credit history, and sometimes even your cash reserves.
However, commercial hard money lenders are mostly focused on the collateral. Some lenders may even downright ignore your financial position and credit history although expect to answer some questions about your past and present credit issues.
If you’ve got a foreclosure, expect that traditional lenders will avoid you like a plague–for at least a few years. Fortunately, negative items rarely spook commercial hard money lenders because they mostly care about the value of your investment property.
2. You Need Business Loans to Act Quick
The loan approval may take as little as 3-5 days since the application process is a rather straightforward one: The value of your property, which serves as your collateral, is the most important factor after all.
Traditional lenders, meanwhile, typically require a lengthy loan approval process, which on average takes 45-90 days. In a hot market where buying and selling moves at a maddening pace, waiting too long for your funds might spell missed opportunities.
Many fix-and-flip investors rely on commercial hard money because of the fast-paced nature of their business. They need short-term business loans that allow them to buy, fix, and sell property all within a year.
3. You Need a More Flexible Arrangement
Commercial hard money agreements are more flexible than traditional loans. In fact, you may negotiate the repayment schedules, and the length of loan since the lenders evaluate each deal individually, instead of adhering to a very strict set of policy that is common in large corporations.
While you may tweak the amortization schedule, take note that commercial hard money is a short-term loan that lasts an average of 1-2 years, although some lenders may offer longer terms of 3-5 years.
4. You Need to Borrow More Time
While hard money comes with higher interest rates than traditional mortgage loans, the quick loan application and less rigid approval process allows you to buy more time to fix your poor cash flow, sort out any financial challenges, or avoid foreclosure (while you’re searching for cheaper business loans to refinance your property).
This short-term loan is sometimes referred to as a bridge loan because it allows borrowers to get through a mandatory waiting period of refinancing with conventional lenders.
5. You Need a Financing Option that Is More Affordable Than Equity
While commercial hard money often comes with 8-12 percent interest rates, it remains less expensive than equity loans and joint venture partners arrangement, which aside from the interest in the loan, a partner may also ask for a percentage of the ownership of your project, which of course can significantly slash your return on investment.
6. Your Property Does Not Qualify for Other Loans
Again, traditional lenders follow a more rigorous application process than commercial hard money lenders. In fact, they may turn you down if your collateral is an owner-occupied property due to government regulations and requirements.
Some traditional lenders even follow specific lending underwriting guidelines that are based on the neighborhood of the property, location and nearby amenities, asset class, among many others.
Hard money lenders, meanwhile, accept different types of property such as commercial land, single family residential, multi-family unit, industrial property, etc. Hence, this financing option suits many house flippers and real estate investors.
7. You Need Higher Leverages
In many occasions, you can get higher leverage from commercial hard money lenders than through bank financing. After all, they focus more on the value of your investment property and are not restricted by rigid underwriting and guidelines, which are commonly practiced in large corporations.
Typically, the amount of commercial hard money loans is 50-70 percent of the property’s market value.
The higher leverage allows you to take on more ambitious fix-and-flip projects (i.e., more capital-intensive), which often come with huge financial rewards.
For more information about commercial hard money, contact the loan experts at AS-IS loans. We can help you get a loan no matter what your credit score is. Call today for more information!