In the world of commercial real estate, situations frequently arise where large funding is still being arranged or coming down the pipeline, but there are immediate costs which need to be covered. Instead of taking out a traditional bank loan, or digging into personal savings, commercial real estate investors use hard money loans to cover the expense.
A Brief Overview of Hard Money Loans
Hard money loans serve as a short-term measure to fill in any gaps in funding before larger financing becomes available. This allows investors to cover things such as closing costs, inspections, and other time-sensitive costs so things are squared away before renovation and major construction (the things covered by larger funding) commence. There are also a few features that set hard money loans apart from conventional short-term loans.
Hard Money Loans are Quick to Arrange
Between prohibitive requirements and long processing times, bank loans are frequently out of the picture for commercial real estate investors. By contrast, hard money loans are easy and fast to arrange, in part because the loans are structured around the value of the collateral being used, and the decision to approve loan requests are made by private investors, rather than the red tape involved with a bank board.
The Terms are Customizable
Conventional loans through banks and similar institutions have a “one size fits all” approach to lending. This does not work in favor of commercial real estate investors, because every property transaction is unique. Every piece of real estate has different requirements – whether it is a fix and flip project, renovating office space, or building new hotels and medical centers, so financing must be tailored to suit each situation. Hard money loans can be structured with amounts and terms that offer much greater flexibility than standard short-term loans.
And There are Zero Penalties for Prepayment
Traditional loans are based on bottom-line numbers, and the profit comes in rigid payment schedules. If a real estate investor is in the position to pay back a loan ahead of schedule, the bank will trigger prepayment penalties, which are often more prohibitive than riding out the terms of the loan and leaving debt on the balance sheets for the duration. Hard money loans, on the other hand, have no prepayment penalties. The commercial lenders arranging hard money loans are invested in the success of our property – the more profitable the transaction, the faster they get repaid – which is why there are no prepayment penalties or fees of any sort.
If you would like to learn more about hard money loans for your next commercial real estate project, contact Commercial Abel Funding at 301-200-9801. We specialize in getting commercial real estate investors the funding they need in order to meet their goals for long-term success.
