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Commercial Properties with Difficult Private Money Loans

Private cash business credits can be an exceptionally keen approach to back a business property in today’s difficult business sector. It used to be private cash business advances were basically for borrowers with credit issues. Circumstances are different. Today, private cash business advances are being used by a wide range of sorts of borrowers.

Private money commercial loans are often used for properties that a more traditional lender would not lend on. let me talk about a property I recently got funded, and you will see how this hard money commercial loan was perfect for this situation. The borrower bought a beautiful 3 story commercial building from a company that went bankrupt. When they bought the building, the building was vacant. Now, the building needs to be improved to handle multiple tenants. As there were no tenants, no bank would even look at this loan. However, with my private investors, they realized that if the building were occupied, the income would be more than sufficient to handle debt payments, and to pay back the borrowers a nice return. My investors funded this loan in 25 days. This is a perfect example of why to use a hard money commercial loan.

Private money financing for a commercial property is normally easier that a traditional bank loan. Of utmost importance is the fact that the investor simply wants to make sure they are paid their money. To that end, a hard money lender requires that the Borrower have plenty of equity. For instance, lets says a Borrower owns a small 12 unit strip mall, has a 585 credit score, needs a loan of $500,000, and the property is valued at $2,000,000. This Borrower will not find it easy securing financing with a local bank or traditional mortgage source.

Due to the low loan-to-vale ratio of this loan, 25%, I have private investors who are eager to lend on this situation.

Keep this in mind, when looking for a private money loan, the loan to value ratio will always be lower than a traditional commercial mortgage. Normally, and depending on credit and how the property “cash flows”, and the Borrowers capacity to re-pay the loan(income), the maximum loan to value is 70%. In a traditional commercial mortgage, the maximum is 90%.

A private money loan is not cheap, expect to pay 3-7 points, and a rate of 9-15%. In the end, rates and fees are dependent on the risk of the transaction. In general, the roskier the loan, the higher the interest rate.