Buyer of commercial property struggles to secure financing because of vacancy.
Alliance Portfolio provided financing of $6,200,000 for a 5-year term with a 12 month prepay and closed in 14 days. Hard money commercial loans!
Commercial Financing Challenge:
Following the outbreak of Covid in 2020, Commercial retail properties who had vacancy’s struggled to secure long term commercial tenants. This effected both buyers and sellers’ ability to close purchase transactions.
Due to the high number of Vacancy’s, traditional commercial lending sources were not willing to finance properties that were not generating sufficient cash flow to cover monthly mortgage payments. This left many transactions that were already underway in limbo with a buyer who was locked in a contract and now could not execute on his contract because financing was no longer available.
Commercial Hard Money Solutions:
Hard money commercial loans can provide a variety of solutions for this common commercial financing challenge we saw in 2020 and 2021. Offering bridge financing, flexible underwriting, Favorable closing times and short prepayment penalties, hard money financing has become an attractive financing alternative for commercial borrowers.
Most commonly, Commercial hard money lenders have provided bridge financing that allows the borrower to secure long-term tenants and generate positive cash flow to cover mortgage payments. Hard money bridge loans are primarily about timing. Securing long term tenants is the key to securing traditional commercial financing and this can take anywhere from 6-18 months, a commercial hard money loan provides a sufficient timeline for a borrower to achieve this. Depending on the lender, interest reserves can be included in the loan to assist the borrower in servicing the monthly mortgage payments while securing new tenants.
Hard Money offers flexible underwriting that allows commercial borrowers to receive loan approval with high debt to income ratios. In most cases, Hard money loans are approved based on 6 months bank statements and equity in real estate. Cash flow generated by the building can be included with the borrowers personal or business income as proof of the borrower’s ability to service the monthly mortgage payments.
Commercial hard money loans also offer favorable closing times. Depending on the purchase contract, hard money can provide quick closing time that allows the borrower to meet their deadline. This is important because the earnest money deposit is often at risk when running up against closing deadlines. Additionally, hard money commercial loans can be a resource when completing a 1031 exchange which are time sensitive transactions.
Commercial hard money loans also provide borrowers with favorable prepayment penalty terms. This allows the borrower to pay off the loan in as little as 6 months without paying any additional prepayment fee. This reduces the amount of monthly payments the borrower must pay which reduces the total cost of their interest only loan, giving the borrower added incentive to refinance the debt in a timely manner.
Do you have questions about commercial hard money loans, bridge loans, fix and flip loans or loans for bad credit borrowers? Contact Alliance Portfolio today to discuss your scenario 949-349-1322
