And they are also declining them! So what's the point? Getting a loan approval depends on meeting the lenders revised guidelines. Private Money Lenders ARE Hard Money Lenders. Today they even try to call themselves "situational" lenders. It seems back in the day, the high interest rates normally associated with "private" money lenders led to the private money community being defined as hard..so why didn't we call good credit lower interest rate lenders "soft money lenders? Perhaps this is a classic example of a business sector's failure to define itself before others did. Hard money can actually do what other banks REFUSE to do..to issue loan approvals that help a building owner out of a problem.
One example I recent ly encountered is a building owner who has a five year balloon with a national lender that comes due in one year. We all know one year is like a week in terms of dealing with a looming and potentially dangerous balloon commercial mortgage. But what's a building owner to do when the debt to income analysis shows that while the bills are being paid there are too many bills relative to revenue in the eyes of a conventional lender? The building owner is declined by bank after bank and then only upon speaking to a broker, learns from the broker that those conventional lenders won't lend to people with high debt even if the credit scores are between 620 and 650! So now the building owner is getting nervous because the banking crisis is all over the newspaper, internet and people's retirement savings! building owner is worried that banks are tightening up and making credit more difficult to get...and they are! Building owner realizes that this is not just temporary but in many cases a return to pre 9/11 lending standards where underwriters actually get to underwrite a loan file without being harassed by their boss for doing there job!
Broker says to building owner, I'll go to a conventional lender and see what they say. Broker does and loan is declined. Broker did the right thing for building owner because many property owners are declined because 1)bank they went to on their own is the wrong type of bank for their property type or isn't lending anymore in that part of the state or the whole state! 2)building owner or broker did a terrible job presenting loan to bank and didn't correctly argue the case before the bank and the Broker can then rule out thse possible reasons for a loan declination.
A reputable Broker will use a "hard"/situational/private money lender as a last resort. Now that Broker sees that building owner is not "bankable" with Main Stream lenders Broker will go to a hard money lender. Most will require an appraisal, some won't but may not lend in the state you own your property in. Broker should put in presentation to hard money lender one very important thing....that the proposed future loan should have some meaningful benefit to the borrower. In this case, the building owner is approved for a hard money loan at 11.9%, no prepayment penalty, NO Lockout clause, five year balloon and the monthly payment is being lowered by over a thousand dollars. Building owner's cross collaterization is removed (which will allow him/her to use those assets for other financing request or possible sale to raise even more cash) and a family member who cosigned will come off the loan(and Broker explains to borrower that family member should never have cosigned since they are not on the property and has no day to day role in the business-of course that bank will tell you otherwise). Building Owner is required to pay out of pocket for appraisal and toxic report. This may take another two weeks to 30 days.
In the building owner's case above there are enough benefits to go with the loan...oh and did I mention it gives him/her more time to escape the balloon? Building owner tried to get a loan with SBA, spent much time at the SBDC(small business development center) working on a business plan that didn't even result in financing. Building owner gets closure knowing that there are other financing options out there. Building Owner's plan is to pay down the credit cards that were used to renovate/rehab the building and if possible move to a conventional loan with a permanent fixed rate in about a year or two. Building Owner also is consolidating three liens on the property into one thereby reducing default and acceleration into foreclosure by any one lien holder (yes many people fail to realize that this dangerous clause may exist in a second or third mortgage note with regard to the additional second and third mortgage lien that you know is placed on your property!).
Hope this helps you understand how a hard money loan can be a bridge to becoming "bankable" and adress other problems besides the loan that plague building owners.
Charles G Hennebeul*Owner*American Cash Solutions Inc*631-368-2219*