Commercial Hard Money Loans: Financing Investment Properties

Commercial Hard Money Loans

Commercial hard money loans provide short-term financing for commercial and multi-family properties when traditional bank financing isn't available or fast enough. These loans help investors acquire, renovate, or bridge commercial real estate transactions.

What Qualifies as Commercial?

Commercial properties include:

Multi-Family (5+ Units)

●Apartment buildings

●Condo conversions

●Mixed-use with residential

Retail

●Shopping centers

●Strip malls

●Stand-alone retail

Office

●Office buildings

●Medical offices

●Professional spaces

Industrial

●Warehouses

●Manufacturing

●Flex space

Hospitality

●Hotels/motels

●Short-term rentals (commercial)

Special Purpose

●Self-storage

●Mobile home parks

●Mixed-use developments

When to Use Commercial Hard Money

Acquisition Speed

●Competitive purchase situations

●Auction purchases

●1031 exchange deadlines

●Motivated sellers needing quick close

Property Condition

●Value-add opportunities

●Properties needing renovation

●Occupancy issues

●Properties banks won't finance

Borrower Situation

●Complex ownership structures

●Foreign nationals

●Recent credit events

●Non-traditional income

Bridge Situations

●Lease-up period financing

●Between construction and permanent

●Sale pending

●Refinance in process

Commercial vs. Residential Hard Money

How Commercial Hard Money Works

Loan Structure

●Term: 12-36 months typical

●Interest: 10-14%

●Payments: Interest-only monthly

●Amortization: None (balloon at term end)

●Prepayment: Often none or minimal

Funding Sources

●Private lenders

●Mortgage funds

●Family offices

●Institutional bridge lenders

Documentation Required

●Property financials (T-12, rent roll)

●Business plan

●Exit strategy

●Borrower financial statement

●Entity documents

Underwriting Commercial Hard Money

Property Analysis

What lenders evaluate:

●Current income/NOI

●Occupancy rate

●Lease terms

●Physical condition

●Location/market

Value Determination

●Income approach (NOI ÷ cap rate)

●Comparable sales

●Cost approach

●Stabilized value projection

Exit Viability

●DSCR loan qualification path

●Sale market conditions

●Refinance timeline

Commercial Hard Money Scenarios

Scenario 1: Apartment Acquisition

Situation: 20-unit building, 60% occupied, needs updates

●Purchase: $2.5M

●Renovation: $300K

●Stabilized value: $3.5M

●Hard money loan: $2.1M (60% LTV on $3.5M)

●Exit: Refinance to DSCR loan after stabilization

Scenario 2: Retail Value-Add

Situation: Strip center with vacant anchor tenant

●Purchase: $4M

●TI for new tenant: $200K

●Post-lease value: $5.5M

●Hard money loan: $3M (bridge to lease-up)

●Exit: Sale or refinance

Scenario 3: Office Building Bridge

Situation: Office building under contract, bank loan delayed

●Purchase: $6M

●Bank refinance expected in 90 days

●Hard money bridge: $4.5M

●Exit: Bank refinance completion

Costs and Fees

Interest Rates

●10-14% depending on deal quality

●Lower for lower LTV, stronger assets

Points

●1-3 points (1-3% of loan)

●Paid at closing

Other Costs

●Legal: $2,500-$5,000

●Appraisal: $3,000-$10,000

●Environmental: $1,500-$4,000

●Closing costs: Standard

Qualifying for Commercial Hard Money

Property Requirements

●Acceptable property type

●Identifiable value

●Realistic exit strategy

●No major title/environmental issues

Borrower Requirements

●Entity ownership (LLC, LP)

●Guarantor with financial capacity

●Experience (preferred)

●Reserves for payments

Deal Requirements

●Reasonable LTV (60-70%)

●Positive or achievable cash flow

●Clear business plan

●Viable exit path

The Bottom Line

Commercial hard money fills critical gaps in real estate financing:

●Speed for time-sensitive deals

●Flexibility for non-conforming properties

●Bridge financing for stabilization periods

●Access when banks say no

The key is understanding the costs, having a clear exit, and working with experienced lenders who understand commercial real estate.