Private money commercial loans can be a very smart way to finance a commercial property in today's challenging market. It used to be private money commercial loans were primarily for borrowers with credit issues.
Times have changed. Today, private money commercial loans are being utilized by many different types of borrowers. You can also search online to get commercial hard money private loans.
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Private money commercial loans are often used for properties that a more traditional lender would not lend on. Private money financing for a commercial property is normally easier that a traditional bank loan. Of utmost importance is the fact that the investor simply wants to make sure they are paid their money.
To that end, a hard money lender requires that the Borrower have plenty of equity. For instance, let's say a Borrower owns a small 12 unit strip mall, has a 585 credit score, needs a loan of $500,000, and the property is valued at $2,000,000. This Borrower will not find it easy securing financing with a local bank or traditional mortgage source.
Keep this in mind, when looking for a private money loan, the loan to value ratio will always be lower than a traditional commercial mortgage. Normally, and depending on credit and how the property "cash flows' ', and the Borrower's capacity to repay the loan(income), the maximum loan to value is 70%. In a traditional commercial mortgage, the maximum is 90%.
A private money loan is not cheap, expect to pay 3-7 points, and a rate of 9-15%. In the end, rates and fees are dependent on the risk of the transaction. In general, the riskier the loan, the higher the interest rate.