Requirements for Hard Money Commercial Loans

Hard money commercial loans are similar to conventional commercial loans, but often carry less stringent documentation requirements. Unlike conventional commercial loans, hard money commercial loans are based purely on the asset being offered as collateral. As such, the hard money lender is much less concerned with the credit worthiness or the financial status of the borrower, their main concern is the property itself and will approve a loan with a property in mind.

Key Feature of a Hard Money Commercial Loan

One of the key features of a hard money commercial loan is that the loan amount will not be more than 50 to 60% of the established value of a property. The value is determined by an independent appraiser that will determine the property can be sold for, on the open market. The appraisal must be dated within six months of the loan approval in order to be valid. Local market values and comparable properties are used to determine the "open market value" of a property.

The Executive Summary

Another important requirement for a hard money commercial loan is the executive summary.  The borrower must complete the form and include relevant experience, recent resume, color pictures of the subject property, and any other information which might suggest to the lender why making a loan on this property would be a good investment. The payoff plan must also be included with the summary. The plan explains to the lender how the borrower will repay the loan and how long they will take to do so.

Title Report

Another requirement of the hard money commercial loan is a clean title record. The hard money commercial lender will want to take first lien priority and they will want to make sure that the existing title of the property can be properly documented. They will want to make sure there are no clouds on title, giving a third party potential claim to lien position at some later time. This can be confirmed with a title report from a local title company. These reports can range anywhere between $500 to $2000 dollars and are easily obtained. A title company will issue a report in approximately one week.

Evidence of Insurance

Hard money lenders will require the borrower to maintain insurance on their property, and the borrower will have to cover the amount specified by the lender. If the borrower runs a business out of the commercial property on which they are placing the loan, the lender may require additional coverage.

New Construction Loans

If the borrower is requesting a commercial hard money loan for a property that is not yet built, they will need to supply the lender with additional documentation. Most commercial lenders will require construction documents, city and local permits, architectural drawings, contractor bonding, insurance, licensing information, and environmental reports. These documents can add significant cost to the hard money loan, as well as additional time in underwriting.

Before applying for a hard money commercial loan the borrower should ask the lender for a required documentation list which outlines the lender's requirements. Putting together the required documents before applying for the loan will save time and money.