How Commercial Hard Money Lenders Combat The Effects of Rising Interest Rates
6 minute read
September 1, 2023


As interest rates continue to climb, securing a conventional loan becomes more challenging, affecting borrowers’ debt servicing capacity and financial plans. Commercial hard money lenders could be the solution you’re looking for. 

In this article, we explore the impact of rising interest rates on commercial loans, the challenges borrowers face with traditional lenders, and how private lenders offer innovative solutions to navigate these obstacles. 

Discover unique ways private lenders—like Marquee Funding Group—structure commercial loans, ensuring borrowers find tailored financing options in a rising rate environment. 

The effect of rising interest rates on commercial loans

As interest rates increase, borrowers face higher costs, resulting in reduced borrowing power and potentially impacting their ability to secure financing. 

Fixed-rate loans become more expensive, while adjustable-rate loans may lead to uncertainty in future payments. 

Moreover, the demand for commercial properties might decrease as borrowing becomes costlier, potentially affecting property values. 

When faced with a scenario like this, borrowers need to carefully analyze their financial strategies, explore alternatives like private lending, and consider creative loan structures to navigate the challenges posed by rising interest rates.

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The challenges of securing a commercial loan in a rising rate scenario

Securing a commercial loan during a rising interest rate environment poses unique challenges for borrowers. 

Traditional lenders become more cautious, tightening their lending criteria and demanding higher credit scores and more substantial collateral. 

As interest rates climb, borrowers’ debt servicing capacity comes under scrutiny, potentially leading to loan rejections or reduced loan amounts. 

Additionally, the loan application process becomes more intricate and time-consuming, causing delays in funding. 

Traditional lenders’ stringent criteria and risk appetite

When interest rates rise, traditional lenders become increasingly risk-averse, leading to stricter lending criteria. 

They may prioritize borrowers with impeccable credit histories, substantial down payments, and stable financials. Small businesses or startups often find it challenging to meet these demanding standards. 

Furthermore, traditional lenders’ risk appetite diminishes during uncertain economic conditions, leading to reduced loan approval rates. 

The rigid application process can also be frustrating for borrowers seeking quick financing to capitalize on market opportunities. 

Impact on borrowers’ debt servicing capacity

Rising interest rates directly impact borrowers’ debt servicing capacity, creating concerns about affordability. As interest rates increase, the cost of servicing loans also rises, potentially leading to higher monthly payments for borrowers. 

For businesses with existing loans, this can strain their cash flow and hinder their ability to meet other financial obligations. 

Moreover, new borrowers may find it challenging to qualify for the desired loan amount due to higher interest rates, affecting their capacity to fund expansion or investment projects.

To mitigate the impact on debt servicing capacity, borrowers should conduct thorough financial assessments and stress tests before taking on new loans. 

Working closely with financial advisors and private lenders can provide valuable insights into managing debt and identifying the most suitable loan options amidst rising interest rates. 

Unique ways commercial hard money lenders structure loans

Private lenders offer a refreshing approach to structuring commercial loans. They provide borrowers with innovative solutions tailored to their specific needs, especially when interest rates are not in your favor. 

Unlike traditional lenders, private lenders often prioritize the potential of the project rather than focusing solely on credit scores and financial history. 

Here are some unique ways private lenders can structure commercial loans.

Blended rate options for enhanced predictability

Private lenders may offer blended rate options that combine fixed and variable interest rates. This approach provides borrowers with a level of predictability in their payments while still benefiting from potential interest rate decreases.

Interest rate locks to mitigate rate volatility

Recognizing the uncertainties of interest rate fluctuations, private lenders may offer interest rate locks. This allows borrowers to secure a specific interest rate for a defined period, protecting them from sudden rate spikes during the loan processing stage.

Hybrid financing models for long-term stability

Private lenders may employ hybrid financing models, combining traditional loans with equity investments or mezzanine financing. This hybrid approach can offer borrowers greater flexibility in managing their debt and optimizing their capital structure.

Flexible repayment terms to suit individual circumstances

Hard money lenders are often more open to negotiating flexible repayment terms, such as interest-only periods or customized payment schedules, based on the unique circumstances of the borrower.

Streamlined application and approval process

Borrowers appreciate a more streamlined and efficient application process with private lenders compared to traditional lenders. This allows borrowers to access funding faster and take advantage of time-sensitive opportunities.

Asset-based lending for non-traditional collateral

Hard money loans open up financing opportunities for borrowers who may lack conventional collateral but have valuable assets. Private lenders may consider a broader range of collateral options, including non-traditional assets like real estate, equipment, or intellectual property. 

Joint ventures and partnerships for large-scale projects

Private lenders often engage in joint ventures or partnerships with borrowers for large-scale commercial projects. This collaborative approach provides access to substantial capital and expertise, especially for complex ventures.

In a rising interest rate environment, these unique loan structures offered by private lenders can be invaluable for borrowers seeking flexible, creative, and tailored financing solutions to achieve their commercial goals.

Commercial hard money lenders—conclusion

To overcome the many hurdles of traditional lending in a higher rate market, borrowers may turn to private lenders who offer more flexibility, faster approval processes, and tailored loan solutions to meet individual needs in the face of rising interest rates. 

Private lenders frequently offer a more personalized approach, evaluating the potential of the project beyond strict credit scores and providing viable solutions for borrowers facing rejection from traditional lenders.

Marquee Funding Group has your solution

Marquee Funding Group is your top choice for hard money lending, bridging the gap left by traditional lenders and banks. 

By collaborating with Marquee, you’ll enjoy a multitude of benefits:

  • Swift same-day approvals
  • Closings in as little as seven days
  • Loan amounts ranging from $50,000 — $20 million
  • Up to 70% loan-to-value

Our extensive range of products includes:

  • Purchase money loans
  • Rate-and-term refinance and cash-out refinance
  • Owner-occupied and non-owner-occupied consumer/business loans
  • Single/multi-family, commercial, industrial, and land loans

We also offer various construction loan options like ground-up, fix-and-flip, fix-and-occupy, and value-add solutions.

For any inquiries about hard money lending or unique lending scenarios, don’t hesitate to reach out to one of our knowledgeable team members.

Submit your loan scenario today to get started.

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