Hard Money Commercial Loans - Current Status

Hard money commercial loans, though still one of the most viable sectors in the commercial loan business, seem to be showing signs of deterioration. A few lenders have actually gone out of business and many have increased their guidelines beyond the point of "cherry picking", so it seems. As in all areas of the commercial mortgage field knowing how is still funding is paramount to getting loans closed.

Commercial Hard Money Viability

In general commercial hard money lenders are getting looks at some of the best transactions ever as many loans that are now coming to them are really traditional bank type deals. Due to most banks putting a halt on funding, some borrowers have become more willing to talk with hard money lenders as a way to get something done, often to save hard earned equity that's left in their buildings.

As a result commercial hard money has been booming and the lenders have been swamped with deals. Commercial hard money lenders have had an opportunity to "cherry pick," i.e. fund only the best deals that cross their desk. Deals that 1 year ago would have gone conventional. Times in deed seem to be good for hard money lenders, however we are seeing signs that this sector maybe the next to get pushed around.

Commercial Hard Money Why the Deterioration

In general we are seeing a few of the national commercial hard money lenders greatly restrict what they are funding, and a few that have gone out of business. For example, many have stop looking at special purpose properties and or place credit score restrictions on borrowers. For example a few national hard money lenders will no longer consider deals with borrowers scores below 700...

Sound familiar? Remember when other conventional sources (think Lehman) started to place restrictions on what they would look at? Every 3 weeks it was another round of what they will no longer do, till the announce was made that they shut down their small balance division.

So is this cherry picking out of control or really the first signs slowing funding? We think the latter. The deterioration has been caused by a number of factors, including sliding values, slowed economic activity in general and for some hard money lenders a slowdown in their access to capital to fund deals. Again, knowing which lenders are still healthy and still funding deals is probably the most important component now to getting loans closed.

Just like everyone else, commercial hard lenders have to get their cash from somewhere. It's rarely just an individuals own cash. Rather it's normally a hedge fund and or a pool of cash from a group of investors that have used this cash to secure warehouse lines. Whatever the case maybe, their cash though less tied to Wall Street than banks, is still often tied to Wall Street.

It have never been more important for borrowers to work with knowledgeable professionals that are n top of the industry and know which commercial hard money sources are still viable and still closing loans. The last thing a borrower wants in this market is to have their good faith deposit taken from them with nothing to show for it. Which unfortunately is happening more and more these days.

Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan a national commercial mortgage brokerage firm. 248 885-8797. He also has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $5. Check it out commercial real estate loans or commercial hard money loans
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