April 16, 2014
Commercial hard money lenders make loans to borrowers who have poor credit, insufficient personal income, or are in need of loans on commercial properties that are not stabilized or need rehabilitation. These lenders are also called commercial bridge loan lenders, and also make loans to strong investors who have good credit and are looking to purchase a value-added commercial property. A value-added property is one that is usually in a decent neighborhood but has not been managed well. Usually these properties are purchased from a bank that has foreclosed on them. The investor is getting a well-below-market price and will likely have to put some money into remodeling or rehabbing the property. When remodeled and fully leased, the property will often be worth twenty percent or more over what the investor put into the property.
There are five types of commercial hard money lenders in America. At Apartment Loan Store and Business Loan Store, we have a 97% success rate closing our commercial hard money bridge loans. We only represent hard money lenders that have the money today to fund your loan. On one end you have lenders that have a fund with $40 million or more. On the other end you have mortgage brokers pretending to be hard money lenders that make their living taking upfront fees and sometimes do not deliver the loan at all. It is important for you to ask and determine what kind of lender is making the loan.
The following hard money commercial lender types are ranked from best to worst:
- Large Fund Lenders – These lenders have a large amount of money to lend, money that is already in a fund. No investors have to be raised. The fund managers decide the underwriting criteria and who to lend to. Some of these funds are hedge funds and are publicly traded. The loans are kept in-house in the lender's portfolio and are serviced by the lender. These loans are usually less expensive (6.00% to 9.00% interest-only). This is the most reliable source.
- Warehouse Line of Credit Lenders – These lenders are borrowing the money themselves wholesale on a line of credit and selling it to you retail. Just like large fund lenders, they have the money already and do not have to get investor approval. Rates are more expensive (9.00% to 13.00% interest-only). Also a very reliable source.
- Investor Pooled Funds – These lenders have a pool of money from individual investors. The fund managers can decide themselves who to lend to. The investors are simply promised a rate of return on their investment. Usually in the 9.00% to 12.00% interest-only range. A fairly reliable source, but often their funds run short and they have to wait for more investors to come on board or for loans on their books to be paid off.
- Individual Investor Lenders – These lenders have from one to a dozen or more high-net-worth individual investors they work with. One or more of these individual investors has to approve each loan. Often these individual investors have their names on the deed of trust. Usually in the 10.00% to 14.00% interest-only range. This type of lender is not as reliable, because the individual investors can change their minds at the last minute and dump your loan for a more favorable one. And sometimes they do not have enough funds to lend at the time you are applying.
- Mortgage Broker – As mentioned, sometimes this is a mortgage company that will take a non-refundable deposit called an upfront fee and try to get you a hard money commercial loan from one of the sources mentioned above. They get paid regardless whether they obtain the loan or not. Sometimes they pretend to be a direct lender. Some mortgage brokers have great integrity, are really good at placing hard money loans with the right lending source, and do not charge upfront fees. Always ask for references from satisfied clients from any mortgage brokers that take upfront fees.
At Apartment Loan Store and Business Loan Store, we use only highly trusted commercial hard money sources that we have a track record with and are listed in category 1 to 3 above. We never take upfront fees. This is one of the reasons we have an A+ rating with the Better Business Bureau. Call one of our friendly loan specialists to discuss your transaction and to get pre-approved: 866-811-9515.