Funding Construction with Hard Money Loans

Using construction hard money loans to get the money you need for a project is an often overlooked alternative. Many prospective developers give up when they are turned down by traditional lending sources. While traditional loans are nice to have, sometimes you have to get by without them for a period of time. Using a hard money loan can be a viable alternative to the traditional commercial lending industry. Here are a few things to consider about hard money loans. 

What Are Hard Money Loans?

Many people do not understand what hard money loans are and therefore do not look at them as a viable alternative. Hard money loans are made by private lenders. These hard money lenders are typically individuals that are in the business of making loans with their money. They have some extra money to invest and they would like a higher-than-normal rate of return on their investment. They make a habit of making loans that are non-traditional in nature. They will lend to those with less-than-perfect credit as well as those in distressed situations. If you are not approved by a regular lender, there is a chance that you can get the money you need from a hard money lender. 

What to Expect

With hard money loans, you should expect to pay more than you normally would for a loan. In some cases, the amount that you will pay will be substantially higher than a traditional loan. Therefore, you are basically paying for the opportunity just to obtain a loan. While it is higher than you would like to pay, it is still better than not getting a loan at all. This still enables you to do what you need to do. 

The application process for a hard money loan is usually much simpler than what you are used to. You will still have to fill out some forms but there is not near the scrutiny that is involved with a traditional lender. The lender will look more at the value of the potential property than at your personal information. They will want to know that the property is valuable and can be sold easily if you were to default on your loan.

Loan Terms

The terms of the loan will typically be a balloon loan for commercial applications. This means that you will receive a certain amount of money and then start making interest-only payments on the money. None of the principal balance is affected by your monthly payment. The loan will usually be set up for about two to three years. It is considered a short-term loan and is not designed to be permanent. Typically you have to develop some sort of successful business history if you have not done so before. A hard money loan will allow you to do that for a few years before you are required to refinance into a more traditional loan arrangement. 

 

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