Private Lenders Guide in Australia
A non-bankable commercial loan is described with the term, “commercial hard money” These Loans are generally provided by Private Lenders in Australia. This Private Loan applies when a company or individual has assets or real estate that are enough to collateralize a loan, but lacks standard servicing criteria for a bank loan. A Private Lender would be reluctant to lend if a property owner is losing money or has poor credit, additionally.
Commercial private loans involve taking higher risks than banks are equipped or willing to handle, hard moneylenders will lend what is termed, “Commercial Hard Money.” These results in a private loan that costs much more to the borrower than a conventional loan would cost. For example, a conventional bank might charge a 5 -7%: finance rate and a single point, while a hard money commercial private lender will typically charge from 10-13% and set up fees.
The commercial Private Money Lenders looks generally to the property itself as a possible source of repayment. Should the borrower not be able to make the loan payments on time or skips a payment, the commercial hard moneylender will likely foreclose on the property and sell off the collateral. However, the caveat is that the commercial hard moneylender does not really want to own a borrower’s commercial property.
Typically, a commercial private loan is one that is understood to be over the short term. In fact, one-year loans are the most common types. However, the borrower should take care to ensure that negotiating a loan term of up to three years on the current market is in the mix. Contrary to popular belief, there is a lot of money available to finance good hard money deals despite the current state of the economy.
Borrowers should beware of fees and high costs involved with a commercial private lending situation especially applicants with a Bad Credit File. This is regardless of whether the pay off comes early, late or even on time. It is very important to read the fine print.
Borrowers should also be cognizant of exorbitant late fees on any balloon payments. Hard money loans that are short term usually end up being paid off late. This is true for at least 70% of the time. It is common for Private Money Lenders to attempt to add huge late charges on the balloon payments. These can be as high as ten points.