Private capital bridge lending (often called hard money lending) has grown in popularity over the past decade.  If you are new to commercial real estate investing and are not yet familiar with private lending, don’t be afraid to ask questions and learn more about this type of funding before you get started. This blog addresses some of the common questions about private capital bridge loans that arise.    Most private bridge lenders will be happy to answer any questions you have about the process as well and often the answers to your questions will vary from lender to lender so it is good to confirm your particular lender’s practices and procedures.

• How do private capital loans work? These loans are often called hard money loans because they are underwritten by the lender placing primarily importance on the value of the asset itself rather than placing their primary focus on the borrower’s credit, finances, or other assets which is typical for traditional lenders like banks or life insurance companies.
• What kinds of interest rates are charged for private capital loans? While specific rates will vary from lender to lender and project to project, most private capital bridge lenders offer interest rates between 9 and 12 percent. These rates are higher than those of conventional lenders because private lenders fund riskier deals in significantly less time.
• Will your private capital loan come directly from your lender and be serviced by them? One of the advantages of private capital lending is that the borrower can deal directly with the lender and decisionmaker. However, some private loan brokers masquerade as private lender. It  is important to ask about this so that you won’t be surprised later on.
• What other fees are involved with closing a private capital loan? As with conventional lenders, private lenders charge origination fees (usually of one to two points) at the closing. Finding out about these fees ahead of time can help you budget your project and figure out whether it will be worth pursuing. You should also keep in mind that there will likely be legal and appraisal fees associated with the closing.
• How quickly can I expect to receive the funds after my loan is approved? Private lenders can usually approve and release funds in two to three weeks. This process can be sped up by providing all the necessary documentation upfront and responding to requests for additional information promptly. Montegra Capital has been known to close loans in as little as one week although we prefer a bit more time.
• What kinds of projects does your lender fund? Private lenders often specialize in different areas of real estate investment. Some like residential fix-and-flips, while others prefer to invest in commercial rehabilitation projects. Some lenders will offer loans for construction projects and raw land deals, while others only want to fund acquisition loans for developed properties. Check with potential lenders in your area to find out what kinds of projects they specialize in and build relationships with the lenders who fund what you want to invest in.
• How long will the loan term be? Private capital loans are typically short-term loans, usually lasting only six months to two years. They are intended to get the borrower from point A to point B.  This is why they are often called “bridge loans”.  You want to make sure that you are able to secure a loan that will last for as long as you need it to. Ask about the ability to extend the loan term if necessary and whether there are any prepayment penalties.

The bottom line is if you are looking into using private capital bridge loans (hard money) for your real estate projects, ask all of the questions that you have and find a lender who is willing to answer them for you. The more you know, the more confident you can be about your deal, and the greater success you should realize with your real estate investments. If you have questions about private capital loan programs for the Colorado area, contact Montegra at 303-377-4181 or loans@montegra.com.  Montegra is now in its 47^th year of funding private capital bridge loans.