The primary rationale for a business considering a commercial hard money loan is that traditional commercial financing options are not viable. There are three financing options for most commercial real estate scenarios: traditional banks, intermediate lenders and hard money lenders. In those situations where traditional banks and intermediate lenders both say "NO", it then makes good business sense to explore under what terms a hard money commercial loan might be available.
Many viable business projects can be funded ONLY via a hard money lender. Before accepting "NO" from the traditional banks and intermediate lenders as the "FINAL ANSWER", a prudent small business borrower should determine if a hard money lender will say "YES".
Compared to traditional bank business loans, commercial hard money loans will generally involve a higher interest rate (prevailing range of prime rate plus 4-8% for typical scenarios), higher fees and shorter-term financing (one to three years). However, because many hard money loans offer interest only terms, the payments can be lower than a fully-amortized loan with a lower interest rate. Commercial hard money loans are typically completed more quickly than a traditional commercial loan.
Several common commercial financing scenarios using hard money loans are described below.
COMMERCIAL HARD MONEY LOAN SCENARIO # 1:
Need to Obtain Commercial Financing Quickly
Traditional commercial loans will normally require several months to complete. Hard money loans can be obtained within a few days in some situations. This difference will be critical if commercial financing is required within a short time frame.
COMMERCIAL HARD MONEY LOAN SCENARIO # 2:
Special Small Business Situations Not Easily Understood by Traditional Banks
• Foreclosure
• Bankruptcy
• Special Purpose Properties
• Tax Liens
• Losses
• Negative Net Worth
• Less than one year in business
• Environmental Requirements
COMMERCIAL HARD MONEY LOAN SCENARIO # 3:
Low Credit Scores
Most traditional commercial loans have very strict standards for acceptable credit scores by the guarantors for a commercial real estate loan. Hard money loans are much more flexible and low credit scores are acceptable.
As noted above, there are several common business situations in which a commercial hard money loan should be considered as a viable commercial financing option. The Commercial Mortgage Loans Guide ( http://aexcfgllc.com ) and The Credit Card Receivables Guide ( http://aexcfg.com ) will provide additional insights into viable commercial financing strategies for difficult commercial loan scenarios.
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