A hard money loan or any other form of special or alternative financing will require due diligence. It makes sense to go over all available options, know what to expect, and determine the documentation you will have to deal with at closing. There aren’t as many predatory lenders these days, but they are still around. So as you explore private commercial lenders’ options, use this guide to stay away from lending practices that could put you in big financial trouble.
But first, your investment goals.
Why and what would you need commercial real estate financing for? By determining your investment goals, you can narrow down the selection of commercial lenders to cater to your requirements and start verifying their authenticity and reliability from there.
Know the difference Between Private Lender & Bank
What makes a private commercial lender different from a bank?
They interact directly with you (the borrower), and they are not affiliated with any financial institution or bank. Private commercial lenders may be valuable to some investors because of their unique approval requirements and the faster approval of loans than conventional financing methods. Interest rates and qualifications will vary according to the borrower’s situation, but working with these lenders is just like with other loans.
Private lenders can help you with almost every aspect of real estate investing. However, it’s still crucial to know and understand the options available to you, how you can use them, and ensure that you are dealing only with legitimate lenders.
TIP #1 – Ensure Transparency
Commercial real estate lending will come with some fees or extra charges, but if they are undisclosed at the time of closing, that’s a red flag. Watch out for lenders who fail to disclose all fees or would stall or ignore your requests for information on what you should pay for at closing.
It makes sense to look out for the HUD closing document before or at closing, so you can explore the various items and relevant fees you must pay. Reputable, legitimate lenders will want to make sure that you know everything there is to know about the loan and all the expenses related to it. If you have any questions, they will be more than happy to answer them to make sure that you are well-informed and can make smart choices and decisions with your commercial loan.
It’s also important to stay vigilant. Pay attention to any large, non-refundable fees of your application. Unusually high penalties for early payments and exorbitant origination fees should be a cause for suspicion.
Remember: If it’s too good to be true, it probably is
It may be an old saying, but it can also apply as you search for private commercial lenders. So if the loan terms and rates look and feel too good to be true, it’s okay for you to have doubts. The lender could not be legitimate.
Borrowers with a poor credit history or without any means to prove their income are usually shunned by lenders, so they fail to secure commercial loans. Hard money loans are easier to obtain compared to standard loans from a big bank. But be cautious when it’s too easy. That’s a red flag, and you should probably stay away unless you can verify through credible sources and customer reviews that the lender is trustworthy and the loan is legit.
TIP #2 – Choose a Lender with a Proven, Strong Track Record.
All commercial lenders will want to make sure that they can prove and show their extensive experience in commercial real estate lending. However, it is your responsibility to verify the truth to those claims. Legitimate lenders will establish their work and show their good track record by being open about their lending portfolio. If a lender refuses to share those kinds of information with you, you have the right to be suspicious.
That said, it’s your turn to verify their claims, too. Do your research and confirm them through third-party sources. You should also ask for their foreclosure rate. A high rate does not automatically make the lender a wrong choice but doesn’t completely ignore your gut feel or your inner voice if you still feel uncomfortable with it.
TIP #3 – Get Help from the Right Entities.
Refer to the website of the Attorney General in your state to find information on identified predatory lenders. It’s an excellent way to start, as it lets you verify if the private commercial lenders you are considering are on that list or not. Moreover, you should check with the Better Business Bureau to check if the lender is registered and accredited. Many legitimate lenders are listed with the Bureau and have an A grade. BBB is also a good place to check for authentic reviews on the lender.
But what if a lender is not listed? That does not mean that you should immediately ignore them. Again, it pays to do further research to verify that they are legitimate and trustworthy. However, if you find that a lender has a bad grade with the BBB and has bad reviews, you should be concerned.
Another way to verify the authenticity of the lender is by simply Googling them. If they are listed on Google Business, reviews will be shown right on the search results. You should also browse third-party websites to find testimonials and personal feedback about the private commercial lender. Those reviews will be made by borrowers themselves, with some negative and some positive. Google may not be a definitive resource, but it can provide some more insights on the lender if you cannot find any reliable information on their official site.
TIP #4 – Get to Know their Commercial Loan Products.
Once you have chosen at least two different private commercial lenders, go over their loan programs and compare their features and see if you can qualify. Legitimate providers know how to close quickly, and they provide an array of loan products that should suit your unique requirements, no matter what your project is and where you want to build.
TIP #5 – Consult with a commercial real estate finance advisor
You can’t go wrong with Capital Investors Direct, which holds a strong track record of providing hassle-free commercial real estate lending to discerning investors who are having difficulty securing good funding through conventional banking channels. The company was founded and established to deliver alternatives to the usually cumbersome and tedious processes associated with conventional lending platforms. As your reliable loan partner, you can find and acquire the right financing for your project.
With their help, you can have access to legitimate and uncomplicated loan products that suit your needs. They offer the education and tools you need to maximize your profits and avoid potential pitfalls. You can also rely on them for strategic and convenient lending services that are simpler and transparent.
Capital Investors Direct offers an array of loan programs, including hard money loans for commercial property investment. Properties of up to $50,000,000 can be financed within 24 to 48 hours. Their in-house team includes advisors, loan specialists, and seasoned underwriters who offer efficient and fast asset-based financing driven by the latest commercial real estate finance technologies.
Find the right commercial real estate loan through Capital Investors Direct. Apply by filling up the form on the website, wait for them to get back to you for approval within 24 hours with the written disclosure of all the loan terms. Within days, the loan should be credited to your account. You can also use their mortgage calculator to help you have realistic expectations on the interest rate, principal, and monthly taxes.