Last week, The Wall Street Journal published an article entitled “Alternative Lenders Peddle Pricey Commercial Loans.” The piece focuses on the rise of alternative lenders as a viable option for post-recession financing for small commercial properties, concentrating on lenders that most people in the mortgage industry would classify as hard money. The article points out that while these short-term, high-interest loans aren’t cheap, these lenders are filling a void in the small commercial mortgage market. So, when is a commercial hard money lender right for your borrower?
- Low credit scores: Though the economy continues to improve, there are still small business owners working to rebuild their credit scores and their businesses. While banks will turn these borrowers away, commercial hard money lenders are more willing to help them obtain the financing they need.
- Seasoning Issues: Banks and some private lenders will have seasoning requirements for refinances that may be an issue for borrowers who need a loan but have not owned their property for very long. Commercial hard money lenders generally don’t have seasoning requirements.
- Bridge to sale: Let’s say you’re working with a borrower who needs a bridge loan and is planning to sell a commercial property to pay it off. Bank loans are usually long-term loans with prepayment penalties, so this borrower’s best bet is a commercial hard money loan. Once the property is sold, the borrower can use those funds to quickly pay off the hard money loan.
- Purchase rehab: Few banks will provide financing to borrowers looking to rehabilitate small commercial properties. If a borrower is looking to purchase a commercial property with the intent to fix it up and sell it, commercial hard money lenders are a good source for obtaining small commercial mortgages.
- Time crunch: Sometimes your borrower will need to obtain financing in a short amount of time, and simply won’t be able to wait for a bank loan to close. Commercial hard money lenders are known for closing loans quickly, and in the right situation, a borrower will think it’s worth the price.
While banks are certainly going to give borrowers the most favorable rates and terms, it’s still tough for many small business owners to qualify for these loans. For some borrowers, a loan with a commercial hard money lender is the best financing option.
For more information about when hard money loans are right for your borrower read “Is hard money an option for you?”
APEX Mortgage Corp. now offers a nationwide hard money program and can help borrowers in 42 states obtain the short-term loans they need. For more information about the program, call 877-958-6035.You can also read our blog “A Softer Approach to Commercial Hard Money Loans.”