Hard money lenders are usually viewed as a last resort for borrowers with bad credit, or they are touted for their speed in approving loan applications. However, there are increasingly more types of loans that banks and other institutional lenders are not willing to make but which hard money lenders are happy to underwrite under the appropriate circumstances. Here are nine categories of loans that most hard money lenders (including Montegra, the oldest and most respected hard money lender in Denver) are more disposed to issue than their institutional counterparts:

1.      Insufficient Debt Service Coverage Loans: Most banks require a certain percentage of debt service coverage before they will approve a loan for a commercial property. Montegra can help borrowers with insufficient or nonexistent debt service coverage by building an interest reserve into the loan principal. This gives the borrower the means with which to make loan payments until the property is leased up and stabilized (i.e., income-producing). The borrower should then be able to refinance with a long-term, lower-interest conventional loan in order to pay off the hard money loan.

2.      Insufficient Global Income Loans: Banks have to consider a borrower’s entire financial portfolio, so borrowers who cannot meet their minimum for sufficient global liquidity, cash flow, and income often get rejected even if their credit history is clean and the individual loan and property meet the lending requirements. Since Montegra relies on asset-based underwriting, the approval of the loan is based on the value of collateral property and not on the borrower’s global financial situation.

3.      Profitability Trending Downward Loans: While banks must consider the financial circumstances of a borrower’s business when deciding whether or not to approve a commercial loan, Montegra can fund a conservative loan-to-value (LTV) ratio on commercial real estate (the property must also serve as collateral for the loan) even if the business making the purchase has decreasing profits or net income.

4.      Collateralization of Vacant Land Loans: Banks and other institutional lenders will very rarely approve loans to purchase raw, undeveloped land because of the risk involved. However, Montegra is willing to approve loans to purchase or refinance vacant real estate as long as the loan is for a first-position mortgage and the land has zoning, platting, entitlements, and infrastructure already in place.

5.      Cash Out Loans: Banks are strongly against lending against the equity in a property if the funds are going to be used for something other than improving that actual property. Because Montegra underwrites asset-based loans that are secured by the collateral property, it is possible for borrowers to “cash out” the equity in a property (regardless of whether it is vacant or developed) and put those proceeds toward another purpose besides the improvement of that property.

6.      Tight Timeframe Loans: Banks can often take months to approve a commercial real estate loan, especially with the tightening of restrictions that is currently taking place. Montegra, on the other hand, can close within three weeks (from the beginning of the underwriting process). As such, Montegra is able to provide funds quickly for time-sensitive deals, allowing the borrower time to work with a bank to secure more long-term funds with which to repay the hard money loan.

7.      Non-Recourse Loans: Banks are generally less willing to underwrite non-recourse loans as it means assuming more risk on their part as this type of loan only allows them to foreclose on the property in the event of a default, and does not allow them to seek additional money from the borrower if the proceeds from the foreclosure are less than what is owed on the loan. Montegra will consider non-recourse requests in certain situations on any loan within Montegra’s funding limit (from $250,000 to $4,000,000). The LTV ratio on non-recourse loans is typically limited to 50 to 60 percent.

8.      Loans to Foreign Nationals: Unlike most banks and institutional lenders, Montegra does not require borrowers who are foreign nationals to have proof of U.S. income or U.S. assets in order to qualify for a loan to purchase commercial real estate or non-owner-occupied investment properties.

9.      Loans on Properties with Marijuana Tenants: The current contradictions between state laws and federal laws make it difficult for investors interested in renting to marijuana tenants to obtain financing. Montegra can underwrite hard money loans on such investment properties as long as the borrower is only a landlord, not a grower or dispensary.

10.  Note Purchase Loans: Astute investors often find real bargains by purchasing Promissory Notes from banks at a significant discount.  Montegra is willing to use these Notes as collateral.  The formal name for this type of lending is called “hypothecation”.  Banks typically are not willing to do this type of loan. Montegra is.

Hard money lenders are more able (and willing) to make these loans because, unlike banks and other institutional lenders, they use asset-secured underwriting with the real estate serving as the sole collateral for each loan, and they are able to charge enough interest in order to cover the high risks involved in underwriting such loans. In exchange, borrowers are able to get the funds they need, when they need them, and so are able to make profits that cancel out the extra costs involved with such loans.