Borrowers may have seen the phrase “Commercial Money Lender” and been confused as to what that is, how it is different from a “Hard Money Lender” and a more Traditional Bank or Traditional Commercial Lender, traditional bank, credit union, etc. “Commercial Lenders” normally refer to those traditional banks / credit union lending departments that loan on commercial properties. “Commercial Hard Money Lender” refer to companies like Summit Capital who provide alternative types of lending on real estate.
Both can play a big part in any real estate investor’s business model but, there are some huge differences and benefits to using each at certain times within the financing of a real estate deal. Because we, the principals of SCM have borrowed tons of money from both banks and hard money lenders ourselves, we have much experience dealing with both. Knowing when to use each is a very important key to every real estate investor’s success.
Traditional banks are great and it is no surprise to anyone that they offer lower rates that Hard Money Lenders, but in our experience it only makes sense to use them in certain scenarios. The biggest negatives with traditional banks is that they normally say no, take too long, and make us borrowers jump through hoops, put down tons of money, and triple or quadruple the amount of time it takes to get projects done.
They also do not like to do more than 1 or 2 deals at the same time, limiting the amount of deals and money that borrowers / investors like us can make. We typically find that on shorter term quick resale “flips” it is more advantageous for us to use hard money on those deals. Banks however can lend on them per my point above, but with often times have too many restrictions and move at too slow of a pace.
We do, however, use traditional banks when we plan to hold on to a building for a period of time greater than 12 months. Maybe there is a nice multifamily building that we want to add to our portfolio, start collecting rental income and possibly sell it later on. In those scenarios, we typically implement the strategy of using hard money on the front end to buy, fix up and stabilize the property, and then refinancing it out with a more traditional bank / credit union once it is 100% rented and generating nice cash flow.
Give us a call to discuss in more depth, or better yet try us on your next deal. We are a proud commercial hard money lender in MA and RI, Boston to Providence and all points in between!