The Five C’s of Securing a Commercial Real Estate Loan

Exterior of commercial building

There’s no doubt that commercial lending practices have become more regimented since 2008, since lenders must take additional steps to protect themselves from losses by evaluating the credit worthiness of commercial borrowers. This enhanced focus on the credit worthiness of borrowers and their loan requests has in some ways restricted lending, but it represents a necessary means of stabilizing the lending landscape.

Commercial real estate loans have not been immune to these more rigorous standards for commercial lending. When it comes to commercial financing, real estate in Texas can still be financed so long as borrowers make sure to keep the 5 C’s of commercial credit in order. While many reference the 5 C’s when speaking of credit in general, they also apply to the narrower field of commercial real estate lending, since the premises are sound regardless of the context. Keep reading to learn more about the 5 C’s of commercial real estate lending and how they may impact your future requests for financing.


Character is a somewhat subjective consideration, as it refers to the character of the borrower as discerned by the lender. The criteria for credit-worthy character can vary from lender to lender, but there are a few waypoints that lenders may use to assess the character of a potential borrower. Those criteria include credit history, employment or business history, past interactions with other lenders, reputation, references, and credentials.

This first C makes a good case for always meeting the terms of your financial transactions and contracts while also paying special attention to business relationships and personal interactions with others.


Capacity is sometimes referred to with another C, cash flow. It refers to your ability to repay the loan. Lenders want to see that you have not only a plan for making the numbers add up so that your debt is repaid, but that you also have the income to realistically pay back the loan.

In the case of real estate lending, there may be some documentation required that demonstrates your net assets, your monthly and annual income, debt and liquidity statements, and other property assets that indicate you have the ability to pay the loan back in the required timeframe.


Many lenders feel more confident about lending to borrowers who are willing to put some “skin in the game,” so to speak. In other words, lenders will often require that borrowers make a significant capital investment in the venture they wish to finance. In the case of real estate transactions, you may be required to invest at least 20% of the appraised value of the property through capital. That capital can come from personal savings, profits generated from previous real estate transactions, or other business revenues.

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The condition of your business or the property to be purchased is another C that lenders weigh into the decision regarding your loan request. In terms of a business loan, lenders will want to see revenue sheets, market conditions, and competitor success rates. In a real estate transaction, the condition of the property will be assessed.

For example, in a hard money loan evaluation, the property to be purchased is the collateral for the transaction. Therefore, the lender will physically inspect the property to determine its condition and attach a reasonable value to it.


Collateral is particularly important in lending for real estate purchases because the amounts borrowed can be significant. Collateral is the physical property or assets that the borrower offers as a guarantee that the borrowed funds will be repaid. If the borrower can’t pay back the loan, the collateral can be offered as a form of repayment to the lender. In many real estate transactions, the purchased property can act as collateral, so that if the loan can’t be repaid the real estate serves as a guarantee.

If you are planning to finance your next commercial real estate purchase, make sure that you’ve considered the 5 C’s of commercial lending and how you match up against them. To learn more about the 5 C’s, contact Investor Loan Source at (409) 735-6267.

Investing in Transitional Properties With Hard Money Loans

Money and Home on Scale

“Transitional property” is a newly coined term for something that’s been around for ages. It poses bigger risks than typical properties, but its return on investment is better.

What Qualifies as a Transitional Property?

It’s a structure or piece of land that’s changing from one type of real estate to another. Some examples include an old townhouse that’s being transformed into an office space or a hunting ground being turned into a rice field. Interestingly, one of America’s most famous amusement parks, Disney World, was once a transitional property.

Residential buildings are usually transformed into business establishments because of commercialization. The ambient noise makes the place less desirable to live in, while new customers and high foot traffic bring in opportunities for local trade.

What Makes It a Good Investment?

The most valuable part of this real estate is the land. Its value rapidly increases as the area advances out of residential and into commercial zoning. That means you can sell the lot for a higher price over time and earn back the money you received from hard money lenders faster.

You can also construct other kinds of buildings if the existing one doesn’t fit your purpose. In addition, if the residential structures in the transitional property are well-maintained, they can make suitable rental investments.

How Do You Identify Investment-Worthy Buys?

While transitional properties are a good buy, not all make an excellent investment. You have to carefully study many things about the real estate you’re purchasing, including soil type, location, and existing commercial projects in the area. An urban developer and land expert can help you go through this.

Research your property market to identify which places are targeted for revitalization or gentrification. These will likely generate the most returns.

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Who Can Help You Fund Its Acquisition and Development?

Converting these types of real estate isn’t easy. It’s also a bit costly. You need a substantial amount of capital to fund a property’s acquisition, renovation, and total transformation if you’re planning to convert it into something else.

Bridge financing and hard money lending have been popular options for buyers who need quick funding to secure a deal. These loans are financed by private investors who see the value of a piece of real estate. When borrowing cash from them, be ready to explain how you’ll solve the property’s current issues and make a steady income out of it.

People with a bad credit history but considerable equity may still apply for a bridge or hard money loan. They may borrow cash for a short period until they qualify for refinancing.

How Do You Make Money?

Renting out a building is good business since it gives you a steady stream of income. However, keep in mind that the value of a transitional property eventually increases. That means you can make more money by selling or converting that piece of real estate at the right time. It’s crucial to monitor the demand for commercial properties in the area, which dictates the land’s appreciation value.

Many agents are still careful when buying and selling transitional properties, and they’d rather stay on familiar ground. But, these lands and structures are an excellent investment since they’re extremely profitable. Working with experts who know the real estate market will help you land a good deal. Contact Investor Loan Source today to secure your hard money loans in Houston.

Tips for Avoiding Common Hard Money Lender Scams

Hand offering money to man through computer screen

For many engaged in real estate investing, hard money loans, also known as bridge loans, can be a helpful tool in financing transactions quickly and efficiently without the need for an extensive approval process. That’s because the loan approval is not based on the credit worthiness of the borrower, but rather the appraised value of the property the loan is being used to purchase. In other words, the property serves as a kind of collateral.

There are many reputable hard money lenders for real estate investors in Texas, but that doesn’t mean there aren’t a fair share of nefarious entities offering hard money loan opportunities. However, engaging in a hard money loan with a disreputable lender can lead to considerable strife for an investor. Therefore, it’s important that when seeking hard money loans that investors arm themselves with knowledge and learn to separate the legitimate hard money loan opportunities from the scams. Keep reading for a few tips that you can use to avoid some of the more common hard money lender scams being perpetrated today.

No Property Evaluation Required

The entire premise of a hard money loan is that the property you plan to buy with it serves as collateral for your loan amount. The loan amount itself is based on the value of the property, so you should immediately be suspicious of any hard money lender that offers approval without first evaluating the property.

This doesn’t just mean that the lender reviewed an appraisal. A legitimate lender will want to physically visit the property to perform a detailed assessment. If you can get approval over the phone for property that the lender has never seen, avoid that lender.

Upfront Fee Scams

Another sign that a hard money lender may be questionable is if there’s a request for a large upfront fee before the proper procedure is performed. Hard money loans follow a specific set of steps, and any deviation, including a sizable upfront fee, can be a sign of a scam. Fake lenders will sometimes call these upfront fees by another name such as an underwriter fee or administrative fee.

Legitimate lenders sometimes also request a fee early in the process, but those fees are generally not expensive and are usually in place to protect the lender if the borrower backs out at a later stage.

Hundred dollar bill in mouse trap

Full Funding Guarantee

Another tactic sometimes used by fake lenders is guaranteed funding of 100% of the property cost in exchange for a high fee. In other words, the lender will tell the borrower that the full cost of the property can be funded if the borrower agrees to paying a high fee. Most hard money lenders will only fund a loan equivalent to 60-70% of the appraised value of the property, so if a full funding guarantee is made contingent upon payment of a fee, you should avoid that lender.

Uncharacteristically Low Rates

It’s not unusual for hard money lenders to charge rates in excess of the bank rates for real estate loans. That’s because there is more risk inherent for the lender in a hard money loan, and because hard money loans are meant to serve as short-term funding sources for real estate investments. Therefore, when a hard money lender lures a borrower in with artificially low rates, there’s problem a scam afoot. If the rates offered by a hard money lender dip well below 10%, that should be a sign that something is wrong.

Hard money loans can provide a tremendous rule for securing funding for real estate transactions quickly, but they aren’t without risks posed by fake lenders. To learn more about how to spot and avoid hard money lending scams, contact Investor Loan Source at (409) 735-6267.