Commercial property owners need capital for various purposes, such as buying and renovating. In an ideal world, property owners would go to conventional lenders such as banks and credit unions as they are most likely to offer the lowest value for money. Sometimes traditional financing is unavailable to the borrower, or the borrower may not want to commit personal funds to finance the project.
In today’s more complex lending world, traditional lenders cannot meet all the needs of business borrowers. These borrowers often turn to private lenders to advance their projects. At first glance, one might wonder why a borrower would be willing to pay much higher interest rates to private lenders (hard money lenders) and instead choose not to proceed with their project until a loan is found.
hard money loans in Dallas are playing an increasingly important role in the world of commercial real estate. For the borrowers, the analysis is about their ultimate goal and the expected return on completion of the project. Here are a few cases where hard money loans make sense to borrowers.
Capital Improvements
If a property needs a significant improvement, renovation, or renovation that, if completed, would increase the value of the property in terms of appraisal and rental income, the borrower can apply for a loan for a shorter term and at a higher interest rate. Often in such situations, once the work is completed and increased value and rental income is received, borrowers may seek more traditional financing, pay the lender with hard money, and replace a loan with a loan for cheaper financing. Or they may try to sell the property, make a profit and move on to the next project.
Development
If the borrower is a greenfield land owner and wishes to start a greenfield development, hard money loans can provide a source of financing they cannot find in the traditional market. Lenders will consider several variables when evaluating a project’s creditworthiness, including the borrower’s development experience, collateral, schedule, the borrower’s equity in the project, project performance, and financial reserves. Weakness in one or a combination of these factors may cause a traditional lender to refuse to finance a project.
Buying a property
When borrowers are interested in buying property, the purchase timing is often critical. Hard money lenders cater to this market and provide an efficient tool in the buying process. Hard money lenders are more nimble and can review, approve and close loans faster than traditional lenders.