What Is The Difference Between A Hard And Soft Loan?

What Is The Difference Between A Hard And Soft Loan?

More often than not, business dealings that involve debts include banks and other financial institutions.

However, these organizations have certain criteria that businesses have to meet. If you are a startup, you lack credibility in the market. Therefore, a bank may reject your loan application.

Just because a bank does not provide you with a loan does not mean that there are no other avenues available.

There are commercial lenders available who offer several financing options. However, in contrast to soft loans offered by banks and traditional institutions, loans provided by such firms are hard loans.

Here are some of the differences between hard and soft loans:

The Qualifications Required For Loans

Traditionally, hard loans are asset based, which means that people seeking them have an asset to use as collateral.

These loans have a specific use unlike soft loans.If you take the advice of a financial consultant then he will probably tell you that soft loans are much safer.

When you approach a bank for a loan, the bank conducts a background check on your credit history first before accepting your loan application. Since the financial crisis of the year 2008, banks have revised their credit policies making it harder for you to get a loan. Therefore, if you have a history with bad credit then your chances of getting a soft loan are very slim. This is not the case with hard loans.

Hard moneylenders do not have stringent criteria when it comes to offering loans since they offer loans based on guarantee. The lenders prefer guarantees since it ensure that their investment remains secure.

For example, if you used the money to purchase a new house and then defaulted on the payments then the ownership of the house transfers to the moneylender.

The Interest Rates

It might be easier for a businessperson with a bad credit history to secure a hard loan; however, it does come at a cost. The rate at which a hard loan is given is higher than that of a soft loan.

Furthermore, there is absolutely no flexibility when it comes to repayments. Normally the term for the loan is that of a year and there is also a fee that you might have to pay at the closing time. However, these additional costs are avoidable with the appropriate calculations and if you play your cards right.

That does not mean that there is no opportunity to get good returns on your hard loan. Normally, people intending to work in real estate are the ones who opt for hard loans. They use the money to buy the property and then sell it at the higher price.

In this way, you can get profit on your investment. Hard moneylenders charge rates at the percentage of the expected value of the property. This can also be an opportunity for making profit if you manage to sell that property for a higher rate.

If you are looking to buy property or are about to make an acquisition and are looking for a hard loan then we suggest you to get in touch with us. We at GCP Fund offer hard money loans in New York and other regions. We have over forty years of experience in this field and offer lending in several areas, which include real estate and construction.



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