Emily Landgraf is the social media coordinator at APEX
Mortgage Corp. APEX is a nonconforming national lender
that specializes in small-balance commercial mortgages
($25,000 to $1 million). APEX excels in understanding the
credit and income nuances of the self-employed. Learn
more about APEX at apexmtg.com. Reach Landgraf at
(800) 262-2739, ext. 211, or email@example.com.
Don’t Fret Over a Bank-Loan Turndown
Hard money and related niche loans can solve problems for complex borrowers
By Emily Landgraf
Continued on Page 80 >>
are going to face at one time or another, since there are
many small-business owners who will not qualify for
It might seem that after a bank turns down a loan
request, a borrower’s options are very limited. To some
commercial mortgage brokers, hard money might appear to be the only alternative.
In fact, this isn’t the case. Although some commercial borrowers are going to be limited to hard money
loans because of poor credit, seasoning issues and a
variety of other factors, there are plenty who can qualify for a mortgage that combines the characteristics of
bank and hard money loans. It’s important for brokers
to understand their clients' financial situation as well
as the type of loans they’ll qualify for.
Hard money defined
Hard money loans are a type of asset-based financing
through which your borrower receives funds secured
by a commercial property, generally at a high interest
rate. These loans are typically interest-only products
and tend to be short-term solutions — one or two
years — with a balloon payment at the end.
Borrowers requiring a hard money loan often have
experienced a distressed financial situation, such as a
bankruptcy or foreclosure, which has damaged their
credit. Interest rates are usually at least 12 percent and
can often be much higher because lenders are taking
on more risk with a hard money borrower’s situation.
The other costs of a hard money loan also tend to be
higher, with lenders charging as much as 10 percent to
close the deal.
Hard money loans aren’t cheap, but they do fill a void
in the small-balance commercial mortgage market. So,
it’s important to be able to recognize a borrower who
will only qualify for this type of deal and to select the
right hard money lender.
When it works
If your borrower’s credit scores are particularly low, a
hard money loan might be the only option. Hard money loans can be a way for borrowers in financial trouble
to obtain the funds they need while reestablishing a
positive payment history. As a broker, it’s important
to encourage your borrowers to make their payments
on time and to keep records of these payments, since
most hard money lenders don’t report them to the
Seasoning issues also can keep a borrower from
qualifying for a mortgage from a bank or some private
lenders. Generally speaking, if your borrower has
owned a commercial property for less than two
years, the individual will run into issues with seasoning. In this case, a hard money loan could be the
right solution as these types of lenders usually don’t
have seasoning requirements.
Borrowers who need a bridge loan and are planning
to sell their property to pay it off also are potential candidates for hard money financing. Bank loans and some
private-money mortgages are usually longer-term loans
with prepayment penalties, so a hard money loan that
can be paid off quickly without incurring additional fees
is your borrower’s best bet in this situation.
Another case in which your commercial borrower may
need a hard money loan is for a purchase-and-rehab
property. Few banks are willing to provide financing
to borrowers looking to rehabilitate small commercial
properties, and even many nonconforming lenders shy
away from these situations. If your borrower is looking
to purchase a commercial property with the intent to
fix it up and sell it, a hard money lender is going to be a
good source for obtaining the necessary funds.
Finally, for some borrowers who need a commercial mortgage in a very short time frame, waiting for a
bank loan to close simply isn’t an option. Commercial
hard money lenders are known for closing deals quickly
and, in the right situation, a borrower will think it’s
worth the extra costs.
Hard money loans are a great option for some commercial borrowers. There are other options, however,
for small-business owners who cannot qualify for bank
loans but are looking for something relatively inexpensive and stable. For the borrower between a bank
and a hard money place, there’s another option.
Choosing the right
loan for a nonbankable
■ A hard money loan helps borrowers with credit or
■ Hard money also comes with higher interest rates
and closing costs;
■ The quick-close characteristics of hard money
may be worth the extra costs;
■ Nonconforming commercial lenders can offer
financing alternatives that fall between bank and
hard money loans;
■ Nonconforming commercial lenders can work
with some credit issues and their loans don’t
include balloon payments like hard money loans;
■ Refinancing to an alternative nonconforming
commercial mortgage can be a good exit strategy
for a hard money loan.