Commercial Loans - Hard Money Options
Posted on April 8, 2009
Filed Under Commercial loans | Leave a Comment
In today’s market, financing options can be much more limited than in the past for commercial loans. With the onset of the subprime meltdown, commercial property values and commercial lending remained strong.
As the real estate market worsened, however, defaults on commercial loans have gone up dramatically, and commercial lending has tightened. This has further complicated matters, making commercial loans much harder to obtain.
As a result of these market conditions, many borrowers in search of a commercial loan have turned to hard money commercial loans to realize their financing needs. This includes even borrowers who have always been able to walk into any bank of their choice and take out a commercial loan. The banks have tightened up standards to the point where, sometimes, the only liquidity comes from private investors and hard money loans.
Hard money offers options that many institutional commercial lenders do not. With rising vacancies as businesses fail, many commercial properties are unable to meed the debt coverage ratios that banks making commercial loans require. Typically, a bank is going to require a debt coverage ratio of 1.1 to 1.25.
As a result, many commercial property owners are unable to finance their commercial loans with a bank. This is where a hard money commercial loan fits in.
hard money commercial loans are more concerned with the equity value of a property, and the resulting loan to value. If the loan to value fits within their guidelines, a commercial loan can be made. This commercial loan can be made even if the debt coverage is less than one, which is unheard of among banks.
As the real estate market continues its decline, commercial loans will continue to be stringently underwritten. Hard money offers a financing alternative that is feasible in today’s market. The downside of using hard money financing for your commercial loan needs is the added expense. You can typically expect to pay between nine and twelve percent, plus points that can range from three or four to seven, eight or more (depending on the particular transaction).
This can seem like a steep price, but if you are in a position where you need a commercial loan and are unable to obtain one through a bank, it might be time to look into these options for your commercial lending needs.
Commercial Mortgages
Posted on April 8, 2009
Filed Under Commercial loans | 1 Comment
Welcome to our loans blog, we will initially be focusing on commercial mortgages, commercial loans and other issues related to the commercial lending world. Enjoy!
