Commercial Hard Money

Commercial Hard Money Lender or Bridge Lender Programs

Commercial Hard Money Lender and Bridge Lender programs are similar to traditional hard money in terms of loan to value requirements and interest rates. A commercial hard money or bridge lender will usually be a strong financial institution that has large deposit reserves and the ability to make a discretionary decision on a non-conforming loan. These borrowers are usually not conforming to the standard Fannie Mae, Freddie Mac or other residential conforming credit guidelines. Since it is a commercial property, they usually do not conform to a standard commercial loan guideline either. The property and or borrowers may be in financial distress, or a commercial property may simply not be complete during construction, have it's building permits in place, or simply be in good or marketable conditions for any number of reasons.

Some Private Investment groups or Bridge Capital Groups will require joint venture or sale-lease back requirements to the riskiest transactions that have a high likelihood of default. Private Investment groups may temporarily offer bridge or hard money, allowing the property owner to buy back the property within only a certain time period. If the property is not bought back by purchase or sold within the time period they Commercial Hard Money Lender may keep the property at the agreed to price.

Traditional Commercial Hard Money loan programs are very high risk and have a higher than average default rate. If the property owner defaults on the commercial hard money loan, they may lose the property to foreclosure. If they have exhausted bankruptcy previously, they may not be able to gain assistance through bankruptcy protection. The property owner may have to sell the property in order to satisfy the lien from the commercial hard money lender, and to protect the remaining equity on the property.

Legal & Regulatory Issues

From inception, the hard money field has always been formally unregulated by state or federal laws, although some restrictions on interest rates (usury laws) by state governments restrict the rates of hard money such that operations in several states, including Tennessee and Arkansas are virtually untenable for lending firms.

Hard Money Rate

Hard Money Mortgage loans are generally more expensive than tradional sub-prime mortgages. However all mortgage loans are not necessarily considered to be a high cost mortgage. Generally a hard money loan carries additional risk that a borrower is aware of. Rather than selling the property a borrower will opt to keep the loan and if a lender is willing to assume some of the risk by offering a hard money loan.

Interest Rate on Hard Money The rate is not dependent on the Bank Rate. It is instead more dependent on the real estate market and availability of hard money credit. Currently and for the past decade hard money has ranged from the mid 10% to 16% range. When a borrower defaults they may be charged a higher "Default Rate". That rate can be as high as allowed by law which may go up to or around 25%-29%.

Hard Money Points Points on a hard money loan are traditionally 1-3 more than a traditional loan, which would amount to 3-6 points on the average hard money loan. It is very common for a commercial hard money loan to be upwards of four points and as high as 10 points. The reason a borrower would pay that rate is to avoid imminent foreclosure or a "quick sale" of the property. That could amount to as much as a 30% or more discount as is common on short sales. By taking a short term bridge or hard money loan, the borrower often saves equity and extends his time to get his affairs in order to better manage the property.

All hard money borrowers are advised to use a professional real estate attorney to assure the property is not given away by way of a late payment or other default without benefit of traditional procedures which would require a court judgement.

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