Private Money Lending Guide

Private commercial and hard money loans:

Are you a borrower seeking a commercial hard money or private commercial loan? Do you currently own a commercial building or investment property?  If you are considering making a new real estate investment purchase and are unsure of what a private or hard money loan is, please continue reading our quick private money lending guide.

How does commercial hard money work?

A commercial hard money or private loan is typically placed on a commercial or investment real estate as a real estate mortgage as collateral against the true “as is” and or “quick sale” value of the Real Estate for which the loan is made. Most commercial private or hard money lenders will want to fund in the first lien position, meaning that there is no superior mortgage holder over the hard money or private lender. Some lenders may subordinate to another first lien position loan; this loan is known as a mezzanine loan or second lien. These are extremely harder to qualify for and usually more expensive loans they also take more time to process and fund.

Typical lenders may structure their loans based on a percentage of the quick-sale “as is value” of the subject real-estate. This is called the loan-to-value or LTV ratio and typically hovers between 30-80% of the market value of the real estate depending on Real Estate type. This changes with the economy, desirability or strength of the deal and borrower(s) financial strength, clarity and compliance with the loan process. The LTV can also go much higher if you have other Real Estate to cross collateralize or other assets the lender may see as desirable. We have seen instances of a large art collections, precious metals, natural resources to name a few.

How to determine your LTV ( loan to value )?

Determining your LTV can be difficult, the word “value” is defined as “today’s quick sale value.” This is the amount a lender could reasonably expect to receive back from the sale of the Real Estate or assets in the event that the borrower(s) default on their loan mortgage and the Real Estate or assets must be sold in a “quick sale” of one to three months. This value differs from a market value appraisal, which assumes an “arms-length” transaction in which neither the buyer or seller is acting under duress.

Commercial hard money loan program definitions:

This section of JVC’s private money lending guide will discuss typical loan terminology used by lenders.  It is important to know the types of loans they offer as this will assist you in identifying the best lender programs you are seeking based upon your finance situation.

Hard money bridge loans:
A bridge loan is typically a short-term loan ranging from 6 months to 3 years which bridges the Borrower’s immediate financial plan or situation from one point to another point. The bridge loan is excellent when a Borrower(s) only needs financing for a short term or time frame where a long-term fixed rate loan does not make sense or would not immediately qualify the borrower. A hard money bridge loan is typically used by a real estate developer, or other business entity to take advantage of commercial opportunities that today’s conventional banks usually won’t and can’t do. The usual maximum LTV or loan to value allowed on subject properties is 50-75% LTV. Additionally, Borrowers are required to have 10-40% cash or equity invested in a development or project when applying for a bridge loan; this is known as “skin in the game”.

Commercial real estate refinances:
Commercial refinance also known as a “cash out refinances” can allow borrower(s) to take out equity from real estate they already own. This can be a fast and effective way of generating additional working capital. Commercial hard money or private refinance loans are based more upon the real estate collateral property rather than the borrower. Commercial hard money or private lenders can be quite creative using not only the real estate but UCC filings on Furniture, Fixtures, Equipment ( FFE ) as well as inventory. Once all required paperwork has been submitted, these hard money loans may potentially fund as quickly as one-two weeks.

Commercial hard money, end of construction pay off loans:
If a developer has a construction project that is at least 70% completed, they may qualify to obtain a commercial hard money or private loan to pay off the current construction lender and finish the project. A commercial hard money or private loan may also be used to bridge the gap between a finished development or project and a conventional or standard financing from a bank or traditional lender. With an end of construction pay off loan, A developer can use the collateral of the current completed development or project to raise capital for the next development or project.

Commercial foreclosure bailouts (foreclosure prevention):
A commercial private or hard money loan can be used to prevent foreclosure on a commercial or non owner occupied investment real estate property. A ballooned note currently pending foreclosure can potentially be stopped, if the real estate being used as collateral has enough equity, typically you would need to have paid 35% of the mortgage already to equal a 65% loan to value.  Keep in mind that the LTV will usually be based on the quick sale value of the real estate or a appraisal ordered by the lender.

Commercial or investment rehab hard money loans:
A commercial rehab investor can use a hard money loan for short term financing. Once the Real Estate has been renovated and sold for a profit, the funds are repaid which can often allow the borrower to use the funds again on the next real estate project. The average closing time for an approved loan is typically two weeks!

Land hard-money loans:
Land loans are some of the most difficult loans to acquire. They are hard to value or evaluate depending on their location and come with the highest amount of risk to the lender. They typically do not exceed 30%-50% Loan to Value ( LTV ).

Purchases or acquisition hard money financing:
A hard money loan may be used to purchase real estate if a borrower does not meet standard or conventional bank requirements or needs a fast closing as conventional banks have a much slower and stricter lending process.  Commercial hard money allows for less borrower personal requirements than banks ever allow: bad or no credit scores, unfinished construction, Real Estate in need of rehab or repairs, property with tax liens, the list goes on. Commercial private or hard money funding can be used to quickly work around these financing problems and provides a great and necessary opportunity for a savvy investor or entrepreneur to acquire new real estate.

Foreign national commercial mortgage loans:
This kind of hard money loan is for foreign investors who want to purchase commercial real estate in the United States. All types of real estate can be considered for commercial hard money or private funding, including; commercial property, rehab property, non owner occupied investment residential property, hospitality, industrial, apartment buildings and many more. There are Few restrictions that exist for foreign borrowers, with some notable exceptions being Borrowers from nations that the United States government may have restrictions or sanctions on.

If you found our private money lending guide informative and are interested in applying for private money or hard-money loans please contact JVC today.

Contact JVC today if you are interested in applying for a hard money loan

JVC is a nationwide lender that has commercial private money and hard money financing available for most real estate properties. Borrowers who own investment property and are seeking financing should contact JVC to get a honest assessment of their loan request.  JVC is likely able to facilitate a higher loan to value then other private lenders and hard money lenders.  We look forward to hearing from you and hope we can help with your loan request.

*disclaimer – The loan terms and definitions above are in no way a commitment to lend, please do your own research and seek legal counsel when seeking a hard money loan if you are unfamiliar with commercial hard money and private lending practices.