Commercial hard money loans are becoming an increasingly popular option for businesses and property owners who need to quickly secure financing without the red tape typically associated with commercial lending. If you’re considering a hard money loan for your business, here’s what you need to know.
What are Commercial Hard Money Loans?
Commercial hard money loans are a type of loan that is used to finance the purchase or renovation of commercial real estate. Private investors or lenders typically provide these loans, and they can be a handy tool for businesses that need to get financing quickly for a commercial project.
One of the benefits of using a hard money loan for commercial purposes is that these loans are typically much easier to obtain than traditional bank loans. This is because the criteria for approval are not as strict, and the process can be completed more quickly.
Additionally, since the interest rates on hard money loans are higher than those on traditional bank loans, this can be a helpful way to secure funding when you need it most.
Commercial Hard Money Loan Benefits
Commercial hard money loans can provide several benefits for businesses that need to finance a commercial project or purchase real estate fast:
Quicker Process: Compared to traditional bank loans, obtaining a hard money loan is faster. This means that you can get all of your funding requirements quickly and efficiently.
Easier Criteria: Since traditional banks follow stricter criteria for approving loans, this often means that businesses may struggle to find financing if they don’t have assets with the potential to appreciate in value. There are typically no restrictions on the type of commercial property purchased with funds from this loan type with hard money loans.
Higher Interest Rates: If you need to get funding quickly and have a lot of capital at your disposal, you may be able to meet your funding requirements quickly by paying higher interest rates. This makes it possible for businesses to secure the necessary amount of funds within their targeted time frame.
Easier Closure Requirements: One of the main advantages of commercial hard money loans is that these lenders do not require as much paperwork or documentation as traditional banks. This means that once you’ve taken care of the initial application process, getting term sheets or closing documents is a much easier process.
Commercial Hard Money Loan Disadvantages
Banks and financial institutions are becoming increasingly stringent when approving loans for businesses, so finding the right funding solution can often be difficult without some collateral backing up the funds you apply for.
While commercial hard money lenders offer many benefits, there are also some disadvantages that you should be aware of before applying for funds.
Higher Interest Rates: Since interest rates on commercial hard money loans are typically much higher than traditional bank loans, this can make your monthly cash flow requirements more challenging to meet over the long term of repayment.
Riskier Investment: When you borrow funds from a private lender, there is always an associated risk of defaulting on the loan or missing payments which could ultimately lead to foreclosure on the property that has been pledged as collateral against the loan. This means that one missed payment could cause significant damage down the line.
Less Stability in Loan Terms: Compared to traditional bank loans, commercial hard money loans typically have less stability regarding their terms and interest rates, which can make it more challenging to predict your future cash flow requirements.
Less Flexibility in Loan Requirements: Unlike bank loans, where you typically do not need any collateral backing up the funds you apply for, commercial hard money lenders usually require borrowers to have at least 50% of the total financing in place before making a final commitment. This means that if you don’t have capital available or cannot secure additional funding sources, this loan type could be less ideal for your business because falling short on cash flow requirements is less manageable than traditional bank loans.
Higher Transaction Costs: When purchasing properties with commercial hard money lenders, businesses are typically required to pay much higher transaction costs when putting real estate assets in their name. These costs can be as high as 10-15% of the total transaction amount, so if you’re planning to buy a property worth $500,000, then your estimated final costs would be approximately $50,000 in additional fees.
What Features Should a Business Look for in a Commercial Hard Money Lender?
When considering using hard money loans for your next project, it is vital to be sure that you choose the right lender. The following list outlines a few of the most important features or qualifications that you should look for when shopping around:
Reputation: Verify whether or not this company has a good reputation for what they have done in the past and with whom they have worked before. Make sure it is someone who has been doing this successfully for at least five years.
Low fees: Be aware of any upfront fees associated with getting a loan from a commercial hard money lender, as well as monthly servicing charges and other hidden costs.
Lower interest rates: Make sure that the quoted rate is competitive and reasonable relative to other rates offered by other lending institutions.
Professional staff: Ensure that the people you are working with are professional, responsive to your needs, and reliable when it comes time for repayment.
Experience: Verify if the company has experience financing different properties, particularly those similar to what you are looking for in size, etc. For example, if you buy a two-story office building, make sure they have funded similar projects before.
Steps to Secure a Commercial Hard Money Loan
When securing a commercial hard money loan, there are a few key steps to consider.
- Get pre-approved for a commercial loan from a traditional lender. This will demonstrate to potential hard money lenders that you are a qualified borrower.
- Find a hard money lender who specializes in commercial loans. There are many online and offline resources for finding such lenders.
- Work with the lender to create a loan package that meets their requirements. Be prepared to provide documentation on your business, property, and finances.
- Submit the loan package to the lender and wait for their approval. If approved, the lender will fund the loan, and you will be able to use the funds for your business needs.
- Repay the loan according to the agreed-upon schedule and all applicable fees and interest.
The Best Commercial Hard Money Lender in Titusville, Florida
Perhaps one of the most trusted names for Titusville, fl commercial hard money loans lenders is BridgeWell Capital, specializing in funding businesses since 2008. They work with many commercial borrowers and have various funding options available for those looking to ease the financial burden associated with rapid growth.