Hard Money Loans

Commercial Hard Money Loans are primarily used for short-term financing needs in situations where traditional bank financing is not available or is too slow. Common purposes include:

​

1. Property Acquisition: Quick funding for purchasing commercial real estate, often in competitive or distressed markets.

2. Renovation or Rehabilitation: Financing for property improvements, especially for fix-and-flip projects or properties needing significant upgrades.

3. Bridge Financing: Temporary loans to bridge the gap until longer-term financing can be secured.

4. Cash-Out Refinancing: Obtaining funds against the equity in a property for other investments or business needs.

5. Business Expansion: Rapid financing for expanding business operations or opening new locations.

6. Foreclosure Avoidance: Providing funds to avoid foreclosure or to buy properties at foreclosure auctions.

 

Benefits

1. Speed of Approval and Funding: Hard money loans can be approved and funded quickly, often within days, which is crucial for time-sensitive deals.

2. Flexible Underwriting: Lenders focus more on the property value and less on the borrower’s creditworthiness, making it accessible for those with less-than-perfect credit.

3. Asset-Based Lending: The loan is primarily secured by the property itself, providing a financing option when traditional lenders are not viable.

4. Short-Term Solution: Ideal for short-term projects where traditional long-term financing is not necessary or available.

5. Less Documentation: Requires less paperwork compared to conventional loans, streamlining the application process.

6. Higher Loan-to-Value Ratios (LTV): Lenders may offer higher LTV ratios, making it possible to secure larger loans relative to the property’s value.

7. Opportunity for Investment: Enables investors to take advantage of opportunities that require immediate funding, such as distressed properties or auction purchases.

 

Structure

1. Loan Amount:

   • Typically ranges from $100,000 to several million dollars, depending on the value of the property and the borrower’s needs.

2. Interest Rates:

   • Higher than conventional loans, often ranging from 8% to 15% or more, reflecting the increased risk to the lender.

3. Loan Term:

   • Short-term, usually between 6 months to 3 years, designed for quick turnaround projects.

4. Repayment Terms:

   • Interest-only payments are common during the loan term, with the principal repaid in a balloon payment at the end.

5. Loan-to-Value (LTV) Ratio:

   • Generally up to 65%-75% of the property’s current market value, though this can vary based on the lender and property type.

6. Collateral:

   • The loan is secured by the commercial property itself. In some cases, additional collateral may be required.

7. Fees:

   • Origination fees, often 1-3% of the loan amount.

   • Other potential fees include appraisal fees, processing fees, and prepayment penalties.

8. Application Process:

   • Simplified compared to conventional loans, focusing primarily on the property’s value and potential.

9. Exit Strategy:

   • Lenders require a clear exit strategy, such as refinancing with a conventional lender, selling the property, or using business cash flow to repay the loan.

 

Summary

Commercial hard money loans are short-term, asset-based loans designed for quick funding of real estate and business projects. They provide several benefits, including fast approval, flexible underwriting, and higher LTV ratios, making them suitable for time-sensitive investments and borrowers with less-than-perfect credit. With higher interest rates and shorter terms, these loans are ideal for property acquisition, renovation, and other short-term financial needs where traditional financing is not feasible. The loan structure emphasizes collateral value, often requiring interest-only payments with a final balloon payment, and involves fewer documentation requirements compared to conventional loans.