Hard money lenders make the riskier commercial loans, the deals the banks won't touch. As a result, hard money commercial loans are more expensive than bank loans. Where a bank might finance a commercial property at 7.5% and one point, the typical hard money commercial lender will charge in the neighborhood of 11% to 13% and three points. (The sister company of C-Loans, Inc. is Blackburne & Brown, and we are far, far cheaper than the typical hard money rates shown above.)

Hard money commercial lenders look primarily to the property as their source of repayment. If the borrower doesn't make his payments, the hard money lender will simply foreclose and sell the collateral; but no one really wants to own your commercial property.

My name is George Blackburne, and I have owned a hard money commercial mortgage company for 27 years. (If you need less than $3 million, please feel free to contact me about your hard money commercial loan needs.) Over those 27 years, Blackburne & Brown has been forced to foreclose on about 150 commercial properties. I think we made money by foreclosing perhaps once or twice. The rest of the time we either broke even or lost money. Yikes. Clearly no hard money lender really wants to foreclose.

The typical hard money commercial loan is a short term loan. One year hard money loans are common, but you should be able to negotiate a loan term of at least three years in today's (5/25/07) market. There is a ton of money chasing good hard money deals these days.

As you shop for a commercial hard money loan, be sure to watch out for exit fees and prepayment penalties. An exit fee is a big fee that some hard money lenders charge when the loan is paid off, regardless of whether the loan is paid off early, on time, or late.

You should also watch out for large late fees on the balloon payment. Well in excess of 70% of the time, short term hard money loans are paid off late. Many hard money lenders try to tack on a huge late charge on a late balloon payment, sometimes as large as ten points! In contrast, Blackburne & Brown merely raises its interest rate by 3% after maturity. Since we're earning a fine interest rate at that point, we are usually quite content to work with a borrower who procrastinated before applying for his permanent loan.

Many hard money commercial lenders win business based on speed. It is sometimes possible to close a hard money deal in as short as ten days. This type of fast, short term, expensive financing (when compared to a bank loan) is known as a bridge loan.

Other hard money commercial lenders specialize in value-added deals. A value-added deal is where the developer buys an existing property and improves it with the proceeds of the loan. A developer might buy raw land and get the property up-zoned. He might buy an empty retail center, upgrade it, find tenants and install the new tenant improvements. Bridge loans are perfect for this situation because bridge loans rarely have prepayment penalties or lock-out clauses. When the developer is finished with his improvements, he can then either sell the property or refinance it to pull out his profit.

Commercial hard money lenders get their lendable funds from two different sources. One type syndicates a new group of private investors for each deal. The other type of hard money lender, companies like Blackburne & Brown, have big mortgage funds, similar to mutual funds, already assembled. As a result, these hard money lenders are usually faster.