In the lending world, specifically hard money, numerous terms are used on a daily basis that are outside the vernacular of most. Just like any other profession, once you know the terms you are ready to do business. Fortunately, real estate terms are pretty much common sense and the language can be picked up quickly. This series of posts will introduce some of the most common hard money loan terms, or just provide as a refresh for some of those odd-ball terms from the private lending perspective.

Bridge Loan:

This is a type of hard money loan that often refers to a commercial or investment property that is in transition, so it does not currently qualify for traditional financing. A bridge loan can be used to finance the property in the interim.  Almost all so called hard money loans fall into this “bridge loan” category.

Commercial/Business Purpose Loan:

A loan secured by investment or owner-occupied properties such as warehouses, industrial buildings, retail shops, apartment houses, office buildings, or land that is used to build this type of property. All proceeds of this type of loan are considered business purpose and can be funded by a hard money lender. There are also residential “business purpose loans” where a buyer purchases a house to put it on the rental market or to improve it for a “fix and flip” type transaction.

Collection Account Charges:

Lenders may do the collection and accounting of their own loans or have a third party take care of it for them. These charges should be specified up front if the lender wants to require that it will be  the borrower’s responsibility to pay them.

Position:

Position determines in which order claims will be paid in the event of a foreclosure. Most lenders prefer to lend in the first position, but hard money lenders will occasionally lend in a subordinate position (second, third, etc.) in exchange for a higher rate of return.

Security:

This is the collateral that the borrower puts up in order to secure a loan. Hard money lenders like Montegra prefer to make loans secured by real estate, usually intended for commercial or investment purposes.

Stay tuned for more terms to come!

This blog was written by Bob Amter, President of Montegra Capital Resources, LTD., a Colorado hard money lender.  [google_authorship] has been in the private capital lending business for 41 consecutive years.