Hard Money Loans 101: All You Need to Know

Hard Money Loans 101: All You Need to Know

Hello investors and rehabbers.

We were thinking about you and your business—your business needs and the challenges that you face to fulfill these needs. While your management skills allow you to efficiently and productively handle challenges, the financial aspects are something that are not always under your control.

We understand that, especially when you have to finance an expansion, a remodel, a new acquisition, a construction or an investment in a new fixer upper.

Limited in your ability to raise the required capital to invest in your business needs, you then look out for conventional financing solutions—banks loans, SBA loans—you know about them all too well.

But what about when you need a quick loan or don’t qualify for the loan requirements set by the conventional lenders?

That’s a challenge – and something beyond your domain of control!

In such cases, hard money loans and hard money lenders can help you.

What are Hard Money Loans?

Hard money loans are provided by private money lenders (also known as hard money lenders), secured against a collateral and hence can be easily acquired even if you lack a solid history of borrowing.

Yes, your credit score also doesn’t have to be necessarily good — although if it is; it’s a plus.

Term length for hard money loans are usually shorter — usually not more than 5 years, which by the way is adequate enough for a business loan. And because these loans are provided on short term, with more flexible requirements for eligibility, they carry relatively high interest rate than what you get with a traditional type of loan.

Hard Money Loans Have High Interest Rate – Then Why Use Them?

No solution can ever be perfect. Some might try to sound one as so, but there are always certain trade-offs involved in every type of solution on offer.

In case of hard money loans, it’s the high interest rate.

But before basing your decision on this one aspect, it would be wise to look at the overall picture — weighing the benefits against a high interest rate — and then see where you stand.

  • Fast Processing Time:Sometimes you have to take a quick investment decision and act fast towards its implementation.  As such, you will be needing a quick access to capital. A hard money lender can provide you with that.
  • Flexible Nature:Private money lenders don’t follow a standardized underwriting and application evaluation process. They look at each submitted request individually and assess the case in isolation. As a result, with hard money loans you get flexibility that you don’t get with traditional loans. And not just in requirements but also in the terms of the agreement.
  • A Convenient Loan Amount: The approved loan amount is not based on your credit score or the ability to repay. Rather, it is based on the value of the property that you have referenced as a collateral. This allows you to borrow a sum that can conveniently address your business needs if you have an equity to support it.

When Does It Make Most Sense to Apply for a Hard Money Loan?

Hard money loan is just one of the many financing options available to you. It can be sought as per business needs but the situations in which it makes most sense to apply for a hard money loan are as follows (this is not a complete list, however):

  • In fix and flip situations.
  • For entrepreneurial ventures.
  • When you are inexperienced, but know, you have a sound business plan.
  • When you can afford the high interest rate it carries.

How to find a hard money lender? Check out this helpful post to guide you in the process.

We wish you good luck in all your future endeavors

 

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