Where to turn when a bank says no?
I hope each of you are having a great summer and beating the heat. The focus of this month’s column is on hard money, an alternative to traditional lending avenues. I’m commonly asked what is hard money. When I answer this question, people seem to be amazed to find out what a true hard money lender is and the benefits it can provide to a borrower. First, I’ll define what a hard money loan is and then discuss some real cases when a hard money loan is appropriate.
What is a hard money loan? A hard money loan in its purest sense is any loan secured by a “hard asset”. In our case the hard asset our loan is secured by is a first mortgage on either commercial or residential (investment properties only) properties. A hard money lender lends up to a certain loan to value based on the value of the real estate. In our case we lend up 60% off the current market value of the property. A hard money lender, like ourselves, is privately funded and therefore has flexibility to structure loans for a particular situation. To watch a video I made about hard money lending: https://www.fairviewlending.com/blog/video/what_is_hard_money/
Banks and other conventional lenders have continued with very stringent underwriting requirements that prohibit many good borrowers from actually being able to borrower the money they need. For example we recently funded a loan in a ski town on a commercial property. The borrower due to the light snow had a couple soft years but was now back on track. The borrower needed working capital in order to continue with a successful expansion. He was turned down by numerous banks as a result of the two soft years. The borrower’s return on the capital infusion was very good and he needed the money to continue (on a side note, we ended up making a loan to the borrower and he subsequently increased his income by almost 60k per year and paid our loan off in cash within 24 months). A hard money loan is an alternative to conventional lending sources. For example we do not have a credit score minimum, debt to income ratio we must hit, debt service coverage ratio requirements, etc… To protect our loan we cap our loan to value at 60% off the current market value. Most people then ask: Are your foreclosures crazy? Our foreclosure ratio is considerably less than a traditional lender due to the equity the borrowers have in the property, we also have much great ability to work with a borrower thank a bank if an issue arises.
So why use a hard money lender? There are many reasons to use a hard money lender, below are just a few of the top reasons we have seen. Fortunately with a hard money loan, as long as we can understand the situation and the borrower has an asset with ample equity we can structure a loan to fit their particular needs.
1. Need quick closing: A traditional loan takes considerable time to underwrite and fund (typical is almost 60 days on residential and 4-6 months for traditional commercial loans). Many borrowers need something done quicker. Fairview can close and fund the deal typically in 5-10 days depending on the transaction
2. Credit/financials don’t fit traditional guidelines: As a result of the past recession many borrowers’ financials and credit was impaired and they no longer qualify for traditional lending. Fairview can close loans regardless of credit.
3. Property doesn’t fit traditional guidelines: Many times a property might not be performing to its potential (below market rents, etc…), property located in a rural location, etc… that prohibits a bank from funding a loan. Fortunately Fairview works hard to fund transactions that don’t fit traditional underwriting guidelines for whatever reason.
Fairview continues to be the leader in hard money lending in Colorado (also in GA, IL, and now TN). We are able to fund both commercial deals and residential (investment properties only) throughout Colorado. All we need is our one page application; there are no upfront fees on our loans. We underwrite all our deals in house and work hard to get your transaction funded quickly. I hope each of you benefited from this primer on hard money lending. If you have any questions feel free to shoot me an e-mail or give me a call and I’ll get them answered. I look forward to working with you on your next non-bankable transaction