Selecting the best hard-money lender for your commercial real estate is an essential step, and with a bit of research and preparation, you are able to narrow the options to a couple of selected funding source. Consider the following three things when selecting a hard-money lender:

1. Property location: Although a lot of hard money lenders advertise that they lend nationwide, they are mostly geographic specific where they lend. Most of these funding sources like to stay in their own home state or few states around where they've got a greater knowledge of the market dynamics and may check out the property with relative ease. However, there are some private money investors that offer financing nationwide or even international. Most of these lenders consist of larger funds that have network of personnel to handle the extensive due diligence associated with loans away from lender's home area and their fees are not necessarily more or less than local lenders. However, make sure the fund manager has a good knowledge of values in the region in which the property is located. The better the lender knows the marketplace, the more leeway you have when it comes to appraisals.

2. Loan amount: Lenders are often specific about how much they will lend on a transaction. Most have minimum or maximum loan amounts as they have in their guidelines. For example some lend from $100,000 to $1,000,000 on a single loan request. Some won't participate in a transaction with a less than a $1M loan amount. Some even have better pricing for loans that are higher or lower of certain threshold.

3. Loan to Value ratios: Most hard-money lenders finance the same ratios. You'll likely be presented a hard money loan between 50 % to 65 % of property value depending on the type of the property, credit worthiness, income and cash flow of the property and borrower and of course location of the property. For example income producing apartment buildings in major markets are more favorable than a vacant gas station property in a rural area.

Pitfalls

Bear in mind the two most typical pitfalls of hard-money lending: upfront fees and limitless property-type or loan-type combinations.

Upfront fees are normal on larger hard money loans. On a $10M, $20M or more loan request, the capital provider will most likely ask the borrower to pay for due diligence fees. The due diligence of larger loans are costly and time consuming and most of the funding sources hire outside attorneys and consultants to handle them and they will take their fees up front. If requested, always do your personal homework. Of course keep in mind that all lenders, conventional or hard money, would require borrowers to pay 3rd party fees such as appraisal or environmental. Upfront fees and 3rd party fees are nonrefundable, so be sure to have a very good idea about the property's value. Most problems occur concerning upfront fees, when borrowers overestimate the property's value.

There is a hard money lender available for every most property type and just about any required dollar amount. You may be hesitant of a lender that promises it could fund a $100M loan, however. Few banks and in many cases fewer private individuals can invest that sort of cash for any one project.

Many commercial banks have closed down in 2010-2011 and some will close few years from now. There are some regional and commercial banks that approach their borrowers with upside down asset to pay off their debt with discount. Many investors have utilized hard money loan to pay off their existing note with discount or acquired distressed or un-stabilized properties through hard money financing. With private money loans, investors can take advantage of the current market condition.

City Capital Finance is a Los Angeles based real estate investment banking firm arranging debt and equity nationwide for all types commercial and apartment buildings including SBA loans, hard money and bridge loans. For more information visit our website at http://www.citycapitalfinance.com or call us at 877-900-1211.