Is Hard Money Financing the Right Option for You?

By: Mark Hasegawa
With today's credit crunch and near collapse of the CMBS market, hard money or private money financing has become an increasingly popular option for many commercial property owners. A hard money loan can be defined as a unique type of asset-based financing, where based on the current market value of the commercial real estate property, the borrower receives a certain amount of financing. Typically, because of the increase in risk, hard money loans possess higher interest rates than the traditional commercial real estate loans.

Similar to a hard money loan, bridge loans also have similar criterias and costs to its borrowers. However, the big different lies in that a hard money loan is an asset-based loan that possess a higher interest rate (due to the higher risk), whereas a bridge loan deals with a commercial real estate property that is currently in transition, but does not yet qualify for a conventional lender from a lender or lending source. Another difference lies in that a hard money loan typically refers to an asset based loan that signifies that the borrower may currently experiencing financial hardship and needs the hard money loan fast. This could be due to a looming bankruptcy or foreclosure.

Most hard money loans are funded by private money investors and lenders. With hard money loans, because the borrower's credit score is irrelevant, the value of the commercial real estate property becomes much more vital in the process of obtaining financing. Normally, loan amounts start at $1 million to $50 million and maximum loan to value is 65% and maximum loan to cost is 80%. Most hard money financing programs are designed to be short term, and can range from 6 months to 6 years. Like bridge loans, hard money loans are designed to assist the borrower during a time frame when money is in dire need until conventional financing can be acquired.

Money Management
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