When Should You Consider Applying for a Hard Money Loan?

If you’ve had your eye on a commercial property or an investment property, you may think that the process of applying for a home loan is the same as a traditional FHA or VA loan. But it’s not quite that simple. Both of these types of properties are not something that banks and lenders like to deal with because of the possibility that the applicant’s business will ultimately fail or the investment won’t recoup its profitability, so banks are loathe to approve loans for these types of properties in particular.

But does that mean you’re out of luck? Absolutely not. In fact, there are loans that are specifically designed to make applying for these types of properties even easier, but because banks shy away from them, you may not have heard of them before. They’re known as commercial hard money loans and investment property loans.

Commercial Hard Money Loans

If you’re a business owner, you may have plans to scale and expand your business while renovating your space. This is a great problem to have, but getting financing for it can be a huge hurdle. Commercial hard money loans are loans made from private lenders (or lending networks).

You may be wondering, why go to a private lender for a commercial hard money loan? Because banks likely won’t even give you the time of day if you start talking about buying commercial property or renovating your space. Private lenders, who themselves may also be commercial investors, understand the difficulty of this process and are willing to help out their fellow business owners in the process.

Although commercial hard money loans have a higher interest rate than your traditional home loan might, the process of applying and getting approved is often very fast. If your business is new and doing well, you may not have the established track record that banks love to see when considering a commercial loan.

The benefit of commercial hard money loans is that there are less strict requirements and are a solid option for businesses looking to expand that may not have the credit history or business history to show their financial responsibility and creditworthiness.

Investment Property Loans

The same line of thinking applies if you’re considering investment property loans as well. Since banks aren’t in the real estate business, they tend to shy away from people who are looking for loans to invest in a property, either to fix it up and flip it, or otherwise resell it down the road.

Investment property loans work similarly to commercial hard money loans in that they’re made by private investors to people who want to fix and flip or otherwise have a short term investment in a given property.

Taking the Next Step

If either of these types of loans sound like something that could benefit your business, there are two points to keep in mind. First, save as much as you can to make a larger down payment on the loan. The bigger your down payment, the less you’ll pay in interest (and the less money you’ll have to pay back over time).

You’ll also want to consider things like your credit score and the length of time your company has been in business. Although these are not scrutinized quite as much as they are by traditional lending institutions, they are still nevertheless an important part of the loan process.

Last but not least, you’ll want to consider the value of the property you’re looking to purchase. Investment property loans and commercial hard money real estate loans are made on the basis of collateral. They’re concerned about being able to make their money back in the event that you fail to repay your loan, so having some form of collateral is imperative in order to successfully apply for and be approved for a commercial hard money loan or an investment property loan.

If you’d like more information about either of these types of commercial loans, we invite you to reach out to us. We’ll take the time to answer all of your questions as well as provide advice and guidance to help you better understand the benefits of commercial hard money loans or investment property loans. If you’re ready to apply, we’re ready to help. Call us today to learn more!