As an investor—or potential investor—you may need to weigh the circumstances that justify using either commercial hard money loans or investment property loans. The key is knowing the type of transaction involved before you proceed with any additional research. The primary issue is understanding investment property loans are not for owner-occupied property.
Making an Investment Property Purchase
Of course, before you need to research commercial hard money loans, you have to have a property in which you are interested. While traditional investment property loans probably come to your mind first, it’s important to understand the qualifications you must meet with most traditional commercial lenders.
Tax returns and financial statements must show a profit for the past several years
Borrower must show good credit standing both personally and from a business standpoint
Must present a business plan for start up businesses
Lender may request tax returns from previous years prior to the start up of the business
On the other end of the spectrum, the commercial hard money lender will not ask for tax returns, look at the borrower’s credit or request a business plan. The only requirement a borrower must meet with a hard money lender is the borrower must have sufficient equity in the property to secure the loan. Since hard money lenders only loan between 60-70 percent of the property’s value, the borrower must finance 30-40 percent of the property’s value. In the case of depressed property this procedure will change since the amount a hard money lender will loan is based on the potential value of the property after all repairs and renovations are complete.
Approaching a Commercial Hard Money Lender
Once you have an idea what you want to do whether it’s buying a commercial property or upgrading one you already own, you are ready to begin looking for a commercial hard money lender. Before you begin you need to remember that hard money lenders prefer loaning money on property that is located in the vicinity of where the lender operates. This allows him or her to provide services to the local community while also helping those borrowers that are in need of the services of commercial hard money lenders.
If you are trying to decide whether to choose a hard money lender or a traditional lender, you may want to think of some of the following;
A traditional loan will take much longer to process than a hard money loan
Hard money lenders are not interested in your credit history but the value of the property you use to secure the loan
Traditional lenders are not usually interested in financing depressed properties, and if they do they will finance a percentage of the current value of the property. Hard money lenders on the other hand will finance 60-70 percent of the projected value of the property after all repairs and renovations are complete
When it come to commercial lending, the easiest source of funding comes from commercial hard money lenders. When you take the time to conduct necessary research it will be much easier for you to make the right decision about obtaining a commercial loan for your business.