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Birmingham, Michigan

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Commercial Hard Money Loans – Best Scenario

Posted at Commercial Real Estate Loans by Jeff Rauth

Nov. 20, 2008

Tagged with: commercial hard money loan, commercial hard money loans

One of the best scenarios for commercial hard money loans is when the borrower has an opportunity that he knows he will make a substantial amount of money on, needs to move on it immediately, and regardless of the fees the hard money lender charges. With this scenario the profit the borrower will make will easily offset the fees the borrower has to pay to the commercial hard money lender.

Commercial Hard Money Loan - Scenario 1

For example, we have recently worked with a borrower that had an opportunity to purchase a fleet of trucks for his business at a 50% discount. Total purchase price on the trucks was just over a million dollars with a value over $2,000,000. On the commercial hard money loan the borrower had to pay 3% in fees in order to get the loan or $30,000, to be able to save over a $1,000,000 of needed trucks for his business. He collateralizes the commercial hard money loan with his building and was able to close in 3 weeks. So $30,000 in fees to save over a $1,000,000…

Commercial Hard Money Loan - Scenario 2

Another similar example is when a borrower wants to purchase a property from a distressed seller at a substantial discount. Typically the seller can’t wait 60 to 90 days to close a conventional commercial real estate loan and instead needs to close in a few weeks or will not offer the discount.

So say the property is really worth $2,000,000 but the seller has agreed to $1,500,000 a $500,000 discount. The buyer would get a commercial hard money loan at 60% of the purchase price or a loan amount of $900,000 and pay say 5% or $45,000 in fees to the commercial hard money lender. So the borrower would save $455,000 by taking advantage of the opportunity. In this case most borrower wouldn’t care (at least that much) about paying the commercial hard money lender their points because of the amount of money they make off the deal.

In general these type of scenario are much easier to close than the bankruptcy/company turn around/debt consolidation type situation. Many commercial hard money lenders no longer look at deals like this.

Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out

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