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A hard money lender is an investor who makes loans secured by real estate, typically charging higher rates than banks but also making loans that banks would not make, funding more quickly than banks and/or requiring less documentation than banks.

Hard money lenders differ from bank lenders in that they often fund more quickly, with fewer requirements. Hard money lenders are sometimes called “asset-based lenders” because they focus mostly on the collateral for the loan, whereas banks require both strong collateral and usually excellent credit and cash flow from the borrower.

Hard money lenders are willing to foreclose on and “take back” the underlying property if necessary, to satisfy the loan. Bank lenders typically look at the borrower to be able to pay back the underlying loan from the borrower’s income, whereas hard money lenders are comfortable looking to a sale or refinance of the property as the method of repayment.

Why do hard money lenders exist?

Hard money lenders exist because many real estate investors need a quick response and quick funding to secure a deal when looking for a real estate loan. Banks and other institutional lenders that offer the lowest interest rates don’t provide the same combination of speed and transparency in their decision making process, along with quick access to capital.

When does it make sense for developers to use a hard money loan?

In our experience, even investors/developers with strong financial statements and access to bank paydayloanstennessee.com/cities/mcminnville/ credit frequently choose to use private money loans (also called “hard money loans”). Situations where private money loans make the most sense include those where the borrower:

• Has more good opportunities than cash;
• Wants to avoid spending too much time raising equity or debt from many different smaller investors, but prefers to instead focus on finding new opportunities;
• Lacks the patience or time to deal with¬†the bureaucracy¬†of securing a loan from a bank;
• Has an excellent investment opportunity, but does not have sufficient financial strength to get a bank loan, and/or;
• Has a bank line of credit but needs a larger loan than is allowed under the existing bank line. …

  What differentiates hard money lenders from bank lenders?Read More »