Frequently Asked Questions

2. Why would a borrower choose a hard money loan instead of conventional bank financing?

The answer is frequently time-based.  Say a Borrower has applied for a conventional commercial bank mortgage, but the time-of-the-essence closing date is rapidly approaching, the bank is still completing its due diligence, yet the Borrower must close in a timely fashion in order to avoid losing a hefty contract deposit.  The Borrower therefore chooses to finance with a hard money lender, and then after this “bridge loan” closes, the Borrower can take as long as necessary to arrange permanent commercial financing.

Another scenario in which a Borrower would choose a private hard money loan involves the purchase of a vacant property that the Borrower plans to convert to another use (i.e. office to residential). A bank would rather finance the deal AFTER the Borrower has executed his business plan, rented the property, and created cash flow.  A hard money lender is willing to get more deeply involved than most banks, evaluating the Borrower’s track record, the viability of the Borrower’s current business plan to convert/improve the property, as well as the Borrower’s personal guarantee or other collateral. The Borrower is also fully aware that he is only going to have the private hard money loan outstanding for approximately 12 months, and that paying a higher rate of interest for a brief period of time is much less expensive than bringing in much more expensive equity partners for the long haul.

W Financial can be a dynamic solution for many new development financings where an acquisition loan must close with building plans yet to be drawn and approved.  We can even close an acquisition/bridge loan with pre-agreed terms and documentation already in place for the bridge to change into a mezzanine loan, which will then subordinate to a yet-to-be-identified first mortgage construction loan.

<< previous | next >>

Back to FAQ list