Hard money loans can solve a temporary financing problem while you work toward refinancing into a cheaper long-term debt by bringing the property to a stronger position.
More than the term sheet itself, the lender can change the risk profile of the entire deal.
Factors to choose a trusted hard money lender to work with?
Essential things to ask
- Experience: Does the lender regularly finance the type of CRE asset and transaction you want to finance?
- Flexibility: Will the lender consider funding a distressed, transitional, unusual, or weakly-documented deal if the collateral and exit strategy make sense?
- Loan terms: How long are they giving you before the balloon comes due? Are payments interest-only? This will affect how aggressively you need to plan the payoff.
- Interest rates: Is the quoted rate the actual rate or merely an advertised minimum? Don’t take the advertised rate at face value/assume that it applies to you. Look at the actual rate quoted for your deal after fees are included.
- Fees: How many points does the lender charge, and what third-party expenses will you need to pay (as the borrower)?
- LTV: How much of the property value will the lender actually finance for this particular deal?
- Funding process: Many lenders will advertise that they can close within 7 to 14 days. But what documentary requirements and appraisals must you complete before your file is considered ready to fund?
- Transparency: Will the lender clearly disclose the rate, fees, repayment terms, and closing requirements before you sign anything?
- Reputation: Can you verify actual CRE closings and borrower experiences beyond testimonials published by the lender?
Factor #1: The lender’s experience
Ask how many transactions the lender has completed in your specific property type and deal structure.
Some lenders have been in business for decades but don’t have many comparable closings.
What you want is firsthand, deal-level understanding of how deals like yours need to be structured.
Private Capital Investors has more than 25 years of hard money lending experience specifically in commercial real estate.
We’ve helped finance more than $8.5 billion over that period and currently fund roughly $500 million annually across a wide spectrum of CRE categories, from conventional properties to more nonstandard transactions that banks often decline:
Because we understand the business side of repositioning, we don’t back away from distressed properties and major rehabs.
We also take on refinancing and time-sensitive acquisitions.
Factor #2: Loan terms
The terms advertised by CRE hard money lenders are often conditional: you might get a different structure depending on the deal’s risk profile.
Wait for them to put the terms in writing.
Here at Private Capital Investors, our hard money terms run 3 to 24 months, with interest-only payments followed by repayment of the principal at maturity.
Our other CRE and bridge programs range from 1 to 3 years.
To make sure that you can transition into longer-term debt, we can arrange fixed-rate financing from 3 to 10 years through our correspondent lending relationships with life companies and pension funds.
Factor #3: Interest rates
The interest rate becomes especially important if your planned renovations and lease-up run past schedule, or if it takes you much longer than anticipated to sell the property or transition to cheaper long-term refinancing. Every extra month will raise your carrying costs.
Knowing what you’ll pay over the term also helps you judge whether one hard money loan is meaningfully cheaper than another.
The advertised rate alone is not enough: you also have to account for points and other fees.
Rates start at 5.99% here at Private Capital Investors.
Tell us more about your deal so we can run the numbers and give you a concrete quote from which to make your decision.
Factor #4: Fees
What is the all-in borrower cost, with lender points separated from third-party expenses?
Lenders with a lower advertised rate may still be more expensive if they charge more points or higher closing fees.
Related blog on cost-benefit analysis
Those charges could become disproportionately expensive for a short-term refinance because you have less time to spread those upfront costs over the life of the loan.
Here at Private Capital Investors, we’re clear about what you pay and why. Our standard closing costs for hard money loans include:
- lender fees in points
- title insurance
- appraisal
- environmental checks
- legal review
Factor #5: Loan-to-value requirements
How much will the lender lend compared with what the property is worth?
If they will only finance 70% of the property’s value, you need to come up with the other 30% yourself.
It’s important to establish your equity contribution upfront.
We can finance up to 85% LTV here at Private Capital Investors, though of course not all transactions will receive that level of leverage.
We look more heavily at the property’s value and the workability of your exit plan instead of relying primarily on the asset’s income history or your personal financial statements.
Talk to us about your project to get a deal-specific LTV.
Factor #6: The funding process
Hard money lenders close deals much faster than banks, but the countdown only begins after they receive everything they need to finish underwriting.
Related Blog: Documents needed to borrow a hard money loan
You can’t count seven days from the first phone call. Closing could take much longer if there are problems with the:
- appraisal
- title
- environmental review
- documentation
- borrower entity
- insurance
- payoff statement
To keep things on schedule, prepare all the basic deal documents you think may be relevant to your deal.
The initial package we ask for here at Private Capital Investors includes:
- the loan request
- purchase contract or payoff statement
- rehab budget
- recent bank statements
- borrower entity documents
- rent rolls/leases for occupied property
We need 24 to 48 hours to review and either approve or reject a loan request. Funds may be released in 14 days if all closing requirements are met.
Factor #7: Transparency
How forthcoming is the lender when it comes to pricing and loan terms?
Here at Private Capital Investors, we clearly disclose loan-size ranges and starting rates, along with maximum LTV and general closing-cost ranges.
Send us your property information to get preliminary pricing. If you need clarification on anything, our team is always available to answer your questions.
Factor #8: Reputation
What do past borrowers say about the lender’s communication and closing process? Does the lender show evidence of completed CRE transactions?
We’ve had many clients publicly praise our responsiveness and ability to close difficult commercial transactions here at Private Capital Investors.
Have a look at our testimonials section and our list of recent closings to see for yourself.
Related Blog: How To Avoid Hard Money Lender Scams
Factor #9: Flexibility
You’re probably turning to hard money because your deal falls outside of conventional lending criteria.
You therefore need a lender that can work outside that box, too. Private Capital Investors routinely funds:
- non-stabilized/non-cash-flowing properties
- foreclosure purchases
- value-add transactions
- rehab acquisitions
- lease-up properties
We also work with atypical borrower profiles, such as foreign entities and borrowers with non-standard documentation. Unlike formula-driven lenders, we consider the particulars of the deal.
Fill out our loan request form to see what terms may be available.
