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Commercial Hard Money Loans
Asset-based funding or financing that is backed by the value of a parcel of property is commonly referred to as a hard money loan. If the funding is to be used the purchase or renovation of commercial property, it is referred to as a commercial hard money loan. These can also be a type of bridge loan or a loan that you obtain as a last resort. In any case, it is backed by the property value and not the borrower’s creditworthiness.
Since the property protects the lender from default, commercial hard money loans a lower LTV (Loan-to-Value) ratio compared to the more traditional type of loan. This type of loan is similar to the more traditional hard money loan. However, it is oftentimes more costly since the risk is higher than what is experienced with investment properties or non-owner occupied properties. Additionally, these are typically short-term loans with terms ranging from 2 or 3 months up to 2 or 3 years, hence the reference to bridge loans (see above).
Since we are dealing with commercial real estate rather than residential property, commercial hard money loans do not conform to standard loan guidelines. The borrower, the property, or both may be experiencing financial distress. On the other hand, the property itself:
- may have been left during construction before it was completed
- may not be in good or market-worthy condition
- may not have the proper permits in place
Fortunately, the responsiveness and speed of commercial lending industry operations makes it easier to obtain funding, thanks the freedom from regulations that exists.
Properties that Qualify for Commercial Hard Money Loans
The following commercial properties typically qualify for commercial hard money loans:
- auto body, industrial, and manufacturing facilities
- churches and religions institutions
- gas stations and retail stores
- hotels and motels
- office buildings
- storage facilities and warehouses
Remember that the property is the collateral for these types of short-term, equity-based loans. Additionally, cross collateralization may be required. Finally, having a 1st lien position is common with commercial hard money loans.
Commercial Property Hard Money Loan Terms
|Credit Score||not necessarily required|
|Loan Amount||$150,000 to $9 million|
|Lon-to-Value ratio||60% – 75%|
|Points||4 to 8 Points|
|Pre-payment Penalty||minimum 6 Months|
|Rate||9 – 15% depending on type of property|
|Terms||1, 2, and 5 years|
In most instances, commercial hard money loans are used by borrowers who have a substantial amount of equity but they have a poor credit history. In other situations, these loans are used when short-term financing is required or in turnaround situations. Regardless, Biz4loans has access to a network of over 750 lenders we can find the right commercial hard money loans for a wide range of circumstances.