Hard money loans can be useful for investors who need to bridge a short-term financing gap until they can resell or refinance a commercial property. Here are six common situations in which a hard money loan can help a savvy investor out of a tight financing spot:

1. Some assembly required. Often, an investor will want to purchase a commercial property that has not been well maintained and is in need of capital improvements, repairs or other renovations in order to increase its value for resale or to attract higher rents and better tenants. The investor has a vision for the property and is in need of funding to realize that vision; however, in its current condition, conventional lenders may be unlikely to extend financing because the property is probably underperforming others in the area and may have a high vacancy rate or other factors that don’t fit with the lender’s underwriting guidelines. Hard money lenders, on the other hand, are much more willing to consider an investor’s vision and to loan on the after-repairs value of the property, rather than the “as-is” value.
2. Quick closing necessary. Frequently, commercial real estate opportunities are time sensitive, requiring the investor to have quick access to funds. While conventional lenders can take months to underwrite a commercial mortgage, private lenders are typically able to evaluate, approve, and close a loan in a matter of weeks if the investor is forthcoming and prepared with the property and financial information.
3. Underperforming assets. Hard money loans can also be useful when an investor is looking to stabilize an underperforming commercial property because private lenders use asset-based underwriting, so they are focused on the value of the real estate and won’t immediately reject a loan against a property that has low or non-existent income or high operating costs as being outside their lending parameters. The short term of the hard money loan (typically six months to a year) can be just the time needed by an investor to lower expenses, raise rents, and fill vacancies to qualify for refinancing.
4. Past credit mishaps. Once again, the asset-based underwriting employed by private lenders takes the emphasis off of an investor’s credit score, which is of paramount importance to bank lenders who are restricted by federal regulations as well as a desire to package mortgages into tradeable instruments (i.e., commercial mortgage-backed securities). This doesn’t mean that a hard money lender won’t ask about credit history, but that they are willing to hear the stories behind any blemishes on the investor’s credit report.
5. Global debt picture. Conventional lenders will want to know what other properties an investor owns, especially if there are mortgages on any of them, so that they can get a full picture of an investor’s global debt. However, this is not the case with hard money lenders because they only care about the value of the property that will secure the loan being requested.

If you have a project in need of private capital financing, contact Montegra at 303-377-4181 to discuss your loan request and find out more about our hard money lending programs.