Money… There just doesn’t seem to be enough of it. How many people in the U.S. have absolutely zero debt? It would only be fair to guess not that many because if you think about it, isn’t all money kind of borrowing? The US is currently 22 trillion dollars in debt, and it doesn’t look to be going down any time soon. Now, with all this said, unfortunately, according to society and laws and such, money is not endless and even though it is great to be able to borrow it, the day WILL come where it has to be returned. So where does that leave us? Maybe time to start looking into commercial hard money loans.
What is a Commercial Loan?
If you have bad credit, getting a loan can be almost impossible. That’s where this brilliant solution of a commercial hard money loan may be your new best friend. Okay, but what is a commercial hard money loan? Right. Basically, if you own any real estate that is worth a decent amount of money, the bank can decide that its enough to allow you to borrow some more money.
This can be a savior for people to get back on their feet by catching up on their bills. It works because the loan allows for one larger payment, lowering the amount of interest paid, and therefore saving money!
“For a commercial hard money loan, the lending decision is based on the “commercial asset” (Property) as opposed to relying heavily on a borrowers credit, financials, etc… The loan is secured by a first mortgage.” (Fairview Lending)
What are the Drawbacks?
Now as great as this sounds, and as simple as it may be seeming thus far, there are drawbacks. This solution can be known as a last resort effort because it is very drastic. This works when you need money quickly, but don’t want to give up your real estate…understandable. It is borrowing based on the value of the real estate BUT a risk of losing it if the loan cannot be paid back in the set period of time.
Another reason this is risky is because of the market. Think back to 2008 when everything was crashing and burning and the economy was terrible. If this happens to happen while on a commercial hard money loan, and the value of your real estate plummets, it can be hard to recover.
What’s the Difference From a Regular Loan?
According to Fairview Lending, there are very specific ways that a commercial loan is different than a bank loan. For example, a bank loan requires you to have a credit score of at least 700 whereas a commercial loan requires no credit score.
A bank loan can take up to 2-3 months for it to be put through the entire process and improved for you to get the money. Commercial loans take up to 10 days! The only thing you need to be eligible for a commercial loan is real estate. Banks require much more documentation including income, credit scores, tax returns, and financials.
Where Do They Come From?
Hard money loans are typically issued through companies or private investors and interest rates tend to be somewhat higher starting at around 7%. This is because of a shorter loan duration and a much higher risk. Clearly, there are many pluses to a commercial hard money loan, but also some factors that must be taken into account as well!
If you are trying to decide if a commercial loan is the right direction for you, it is important to weigh all of your options and really evaluate how it will help improve the situation, not just put it off for longer.
You’re Not Alone
One of the worst things to do when it comes to money management is put off paying loans or debts. This only ruins chances of getting more loans and hurts you from being able to even begin to pay off what’s needed. It is an easy trap to fall into, but the best solution available to you is to figure out what will help you pay off the most money, in the shortest amount of time.
Like mentioned at the beginning, most of us have debts because they come so easily…college, a car payment, buying a house, starting a business, etc. There is no reason to feel bad about it, just be smart and don’t think you can act like it doesn’t exist forever.