Hard Money Commercial Loan Analysis Process
The hard money commercial loan analysis process varies from conventional commercial loan analyses. Traditional commercial real estate lenders take a more in depth approach when analyzing a commercial loan application. The reason being that conventional loans hold lower interest rates, entailing a less risky investment. That low risk factor needs to be proven through a process of gathering information and documentation regarding the credit, collateral, capital, and capacity of the commercial property. This conventional loan is often referred to as a “full doc” loan.
Hard money lenders are less concerned about the credit of the potential borrower and more concerned about the equity in the piece of property. These lenders utilize basic, common sense underwriting to analyze each deal. The main component hard money lenders look at is the loan to value ratio. This ratio is a comparison between the value of the loan and the value of the property. Hard money lenders look for loans up to 65% Loan-to-Value (LTV) based off the after repair value. Other typical valuation are performed through the use of appraisals, comparables, and Broker Price Opinions (BPO’s) by other real estate agents.
Hard money lenders will also look at the borrowers capacity or exit strategy. This means they will analysis your ability to make anticipated loan payments and get yourself out of the deal. Hard money lenders will consider whether or not you look to sell or refinance, the timeline of the project, what your exit strategy is, the repayment plan for the loan, and whether there is any verifiable income.
The process for closing a hard money deal can be substantially shorter than conventional loans. In saying so, borrowers must be prepared to provide any and all information to meet all the lender’s concerns. Therefore, preparation is key. Hard money lenders will likely find your deal more attractive if there are any of four elements: cash, cross collateral, credit, or experience. Each of these reduces the risk of the loan, and hard money lenders are most concerned about safety.
Contact the specialists at HML Investments today for further information regarding hard money commercial loans.