Here are some tips for the business owner seeking commercial hard money lenders. These tips will help you avoid the bad and find the good during your search.
Finding the right lender.
Don’t let your desperation force your hand into making a sub-par deal with a commercial hard money lender. You may be in serious need of cash, but you should still spend some time researching and locating the best commercial hard money lender for you. If you rush the decision, you could wind up settling for a loan that costs much more than its worth. While there are plenty of bad deals floating around in the market, there are still a few honest lenders that offer agreeable interest rates, but you have to be prepared to spend some time looking for them. The internet is your best friend during this search.
There are typically two different kinds of commercial hard money loans available on the market. You have recourse loans and nonrecourse loans. If you choose to work with a recourse loan, then you are putting yourself at additional risk. If you don’t repay a recourse loan, then the commercial hard money lender can take your house and then seek further legal action in the courts. This quickly turns into a nightmare scenario for someone who can’t repay the loan. The other option is a nonrecourse loan. This type of loan allows them to take your house if you shouldn’t repay, but they can’t take any further legal action in the court. This is the ideal loan and what you should check for with any loan provider before you sign on the dotted line. Don’t be fooled into losing more than you own.
Low points = win.
When you’re shopping for a commercial money lender you’ll often hear of “points” on the loan. A point on a loan is equal to one percent of the total mortgage amount. That means 1 point on a $1,000,000 mortgage is $10,000. You’ll usually find commercial money lenders that offer loans between 4 and 8 points total. It’s in your best interest to find a loan with the lowest amount of points possible. The lower the points, the less fees you’ll have to pay in the long run. You aren’t likely going to find a loan that is only 1 point, but it is entirely possible and recommended to stay below 5 points or you will quickly get swamped in new fees.
Learn the terms.
Don’t sign any contracts until you are 100 percent comfortable and familiar with the terms mentioned. There are always going to be lenders who design loan structures just to fail. In particular, you should avoid interes-only or adjustable rate loans because they will increase in huge proportions in only a short while. You need to know exactly how much you are paying now and how much you will be paying for the entire duration of the loan. A contract that leaves holes open for changes is not a good thing and should be avoided. If there is a concrete number along every step of the way, then there’s a chance that the price could rapidly expand and become too much to repay.