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What differentiates Montana hard money lenders from traditional lenders?
The critical difference between traditional lenders and hard money lenders is the fact hard money lenders are asset based lenders. They focus on the asset associated with the loan. In contrast, traditional banks focus on credit and how much cash the borrower has. It is super important to remember hard money loans aren’t good for the long run. The purpose of a hard money loan is to be a short term loan that gets you the real estate you’re trying to acquisition. Hard money lenders focus on 6-24 month termloans that reap a significant ROI. If you fail to repay the loan, then the company you borrowed from can take possession of your property in order to repay his/her loan.
When’s a good time to consider getting a hard money loan
Private money loans serve as investment tools by investors. They are useful in a few situations, such as:
Unable to find financing elsewhere. Funding real estate investments is complicated. Traditional mortgages are difficult to acquire under normal situations. Banks are extremely cautious of making loans for purposes of real estate investments, as opposed to loans for primary residences. Because of this, if you’re looking for investment funds – then get a hard money loan.
You’ve got a poor credit. Hard money loans are based off the collateral of the investment, not your ability to repay. Loans made to consumers – as opposed to private money lenders – are based off your ability to repay the loan. This means in case you have a poor credit history or no stable income – then you might not get approved for financing. You need money. Hard money loans are great so you can get money ASAP. Traditional loans take time. Hard money is very fast. If you need to capitalize on an opportunity immediately, then you can find a hard money loan. If you can wait several weeks, then it’s far better to get a hard money loan.
Hard money lenders can help finance your next deal
Hard money lenders assist a very specific group of individuals, i.e. real estate investors. Hard money lending is a type of bridge term financing, which is secured by real estate. Specifically, the men and women who use hard money loans are typically property investors – typically, people who are being denied a conventional loan as a result of stringent guidelines.
Hard money lenders exist because they are fast, and provide loans with little to no headaches. Hard money lenders have a smooth application system. They expect collateral and don’t look at your credit score. They focus on your expertise, as opposed to your credit worthiness. If you’ve got a bad financial history, it’ll be easier to obtain financing by using a hard money loan as opposed to a conventional loan which is granted based on your credit report. Below are scenarios where hard money lenders fill a void that conventional lenders don’t touch:
Montana Hard money loans can be used for fix and flip property investors
Most traditional lenders won’t offer you a loan to get a fix and flip project. If the home is in bad condition, or there’s some other abnormality with the home, then a conventional lender won’t give you funding. Additionally, most reverse and fix potential deals”go quickly.” The seller is extremely motivated to sell the property, and will accept the first deal. Traditional lenders take forever, so by the time the loan is approved – you’ve already lost the property because someone paid cash for it. For those who have a hard money lender on your side who will close a loan in 5-10 days, you can find the fix and flip property.
Hard money loans are essentially bridge loans
From time to time, your job goes over-budget and because of this you need additional funding. Some traditional lenders will deny, because the project isn’t finished. Though this can be catastrophic, a hard money lender might be willing to lend you the money. Hard money lenders are happy to provide money to bridge the gap in funding, and can work with you to fill this void.
Hard money gives you leverage
If you’re a real estate agent, more funding means more deals. By using outside hard money, you can focus on more simultaneous deals that would otherwise not be possible. Conventional lenders consider your entire debt to income ratio, and will not give you a loan if they believe you owe too much money. In contrast, a hard money lender does not care about your income, nor do they care about your outstanding financial obligations. The only thing a hard money lender will fixate on is the value of your property. Hard money loans are great for developers who need funds to get their project started but are not a fantastic fit for conventional lenders. Keep in mind, traditional lenders are not interested in taking on additional risks – they legally are not allowed to following the 2008 economic crisis. Hard money loans typically finalize faster than traditional loans from a bank, which permits you to move quicker. Many property sellers will be flexible on their cost and willing to cut you some slack – if you can show you have funds available. Many property investors that rely on conventional lenders cannot move fast because of delays due to the strict guidelines conventional lenders have. Speed and unlimited money, is why hard money is great.
Montana New Construction Loans
New construction loans for businesses in Montana are usually funded by a commercial construction loan. There are several types of commercial construction loans and different types of lenders. The construction process is lengthy and usually incorporates a commercial construction loan and a commercial mortgage to pay off the construction loan.
Commercial Construction Loan vs. Commercial Mortgage
Characteristics of a Commercial Construction Loan:
Characteristics of a Commercial Mortgage Loan:
Interest rates and fees for a commercial construction loan are determined by the lender and the type of lender or loan. Some fees for a commercial construction loan are documentation fees, guarantee fees, project review fees, fund control fees, and processing fees.
The requirements for a commercial construction loan include a down payment of 10% to 30%. Credit scores and financial documents are needed for review. Most lenders want to see the borrower have a debt to income ratio under 43%. Lenders may have stricter policies on the debt to income ratio and credit scores below 700. A lender will also review industry experience and construction plans. When the lender agrees to lend the funds, a draw schedule is made with the borrower.
Types of Commercial Loans for Your Business in Montana
The Small Business Administration offers two types of loans to businesses that want new construction to expand. The CDC/504 loan is for 10 to 20 years and has a fixed interest rate based on the US Treasury rates. Anyone that owns over 20% of the business needs to make a guarantee. The maximum amount for this loan is five million. The 7(a) Program has a term of up to 25 years. This program is used for buying an existing property or construction for a business. The most loaned to a borrower with the 7(a) Program is also five million.
A bank loan is a traditional commercial construction loan. The interest rates and fees are determined by the lender and the review of your application. A commercial mortgage is usually used to pay the construction loan at the end of the construction project. This gives the borrower the ability to have lower monthly payments over a longer period.
If a borrower needs a loan to meet the down payment requirements, a mezzanine loan has lower qualifications and helps bridge the funding gap. The interest rates higher than a traditional loan and if the borrower defaults the lender gets equity in the business.
Hard money loans are short-term loans that are easy to qualify for when one wants a short-term construction loan. These loans have a higher interest rate but usually, have a shorter application process.
Applying for a commercial construction loan is sometimes a prolonged process. Lenders will want financial information, detailed information about the construction process and other paperwork as they determine if they will fund the project. It is important to look at all areas of funding since you will have the time to look for funds while your application is under review.
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