Why would any borrower accept 15% rates and 5% on the front of a hard money commercial loan? Because their other options are worse, that’s why. For example they may lose a substantial amount of equity out right or have to take on a partner that may take a higher percentage of their equity than a hard money lender would charge in fees. Or they may lose a property or business opportunity to another buyer if they don’t close with in a short time frame.
Also the commercial hard money loans are easier and more reliable to attain than finding, negotiating and bringing on a partner or waiting months for a conventional loan to close (assuming the borrower qualifies). Partners also have the high potential of creating legal issues if the project does not work out as planned.
For borrowers seriously considering going with a hard money commercial lender it is wise to only use a source that has been referred to borrowers by an experienced, unbiased third party. This segment of the industry is filled with unethical people that have the bad habit of taking $5,000 good faith deposits with no intention of funding loans.
For many borrowers this $5,000 may be their last chunk of change and they can’t make the mistake of going with the wrong commercial hard money lender. Borrowers have almost no recourse either as most have to sign agreements stating that the fee is non refundable and the Letter of Intent is only a letter of “interest”. Which of course, relieves the hard money lender of funding the deal.