Private money commercial loans can be a very smart way to finance a commercial property in today’s challenging market. It used to be private money commercial loans were primarily for borrowers with credit issues. Times have changed. Today, private money commercial loans are being utilized by many different types of borrowers.

Private money commercial loans are often used for properties that a more traditional lender would not lend on. let me talk about a property I recently got funded, and you will see how this hard money commercial loan was perfect for this situation. The borrower bought a beautiful 3 story commercial building from a company that went bankrupt. When they bought the building, the building was vacant. Now, the building needs to be improved to handle multiple tenants. As there were no tenants, no bank would even look at this loan. However, with my private investors, they realized that if the building were occupied, the income would be more than sufficient to handle debt payments, and to pay back the borrowers a nice return. My investors funded this loan in 25 days. This is a perfect example of why to use a hard money commercial loan.

Private money financing for a commercial property is normally easier that a traditional bank loan. Of utmost importance is the fact that the investor simply wants to make sure they are paid their money. To that end, a hard money lender requires that the Borrower have plenty of equity. For instance, lets says a Borrower owns a small 12 unit strip mall, has a 585 credit score, needs a loan of $500,000, and the property is valued at $2,000,000. This Borrower will not find it easy securing financing with a local bank or traditional mortgage source.

Due to the low loan-to-vale ratio of this loan, 25%, I have private investors who are eager to lend on this situation.

Keep this in mind, when looking for a private money loan, the loan to value ratio will always be lower than a traditional commercial mortgage. Normally, and depending on credit and how the property “cash flows”, and the Borrowers capacity to re-pay the loan(income), the maximum loan to value is 70%. In a traditional commercial mortgage, the maximum is 90%.

A private money loan is not cheap, expect to pay 3-7 points, and a rate of 9-15%. In the end, rates and fees are dependent on the risk of the transaction. In general, the roskier the loan, the higher the interest rate.

By: Donald Glen Timms

About the Author:
Donald Timms is a Private Equity Specialist with New Heven Financial in Calabasas, California. Donald specializes in private/hard/conventional financing for commercial properties and raw land, and with private/hard money for residential properties. He can be reached at (805)832-0572 and (805)640-1868 email is donaldtimms@gmail.com

In troubled economic times, there have been a lot of newsmakers from Wall Street bailouts to home loan modification programs.

However, one troubled market has slipped under the radar for too long: commercial real estate. According to the Wall Street Journal, real estate prices have dropped by over 43% since a 2007 peak. And foreclosure rates continue to rise.

Unlike the housing market, the term “loan modification” has been slow to catch on with the commercial sector. In fact, it seems many commercial property owners don’t even realize they have an option when a property becomes distressed.

The refinance market is dry and with values plummeting, it can seem impossible to get the bank to approve new financing. Many property owners are hearing “no” and simply accepting that as the final answer.

Commercial Debt Restructuring is a Viable Option

When the refinance application comes back denied, that’s not the end of your rope. What it means is you need to pursue other options. A loan modification is basically a way to restructure your commercial debt even when no other financing alternatives prove viable.

Making it work ultimately comes down to whether or not you can show your lender a justifiable reason to work something out. And in this case, “justifiable” is really just another word for “financial.”

After all, this is a business decision that has to make sense for both parties and in the end, it will come down to your ability to afford payments on the property going forward.

For example, if you’re so far upside down that even a modification won’t bring you back in line with a realistic income and expense report, the bank is going to say no.

Negotiating With the Bank

You can either negotiate directly with the bank yourself or utilize a third party. Usually, results are easier to come by with a third party due to expertise and relationships. There are certain things the bank wants to see and knowing how to properly present that is crucial.

Your rent roll and income and expense report will basically tell the story, but there are right and wrong ways to do it.

Granted, hiring a third party means there is some expense involved, but the fees they charge can be quickly recouped by the savings you get with the lower monthly payments.

Ultimately, you have to make the decision that gives you the most comfort and assurance.

By: Jerry Rodgers

About the Author:
Jerry is passionate about the commercial real estate market. You can learn more about commercial loan workout options and get a free consultation with a commercial debt restructuring specialist.