Frustrated with conventional bank financiers and the snail’s pace of their loan processing? Hard money lending may be suitable for you.
Hard money lenders are those who approve a hard money loan based on the value of the borrower’s assets and equity. In retrospect, hard money lending took shape back in the in the early 1990s. As credit, particularly for real estate, tightened and with the economic recession, loan defaults and foreclosures were widespread. Companies offering sources of private capital capitalized on the situation, and the hard money business surged. Many borrowers had no choice but to accept exorbitant rates for urgently needed funds.
Hard money lenders came to have ill reputation, as collecting firms pounced on naive borrowers and charged the latter excessive up-front fees. Over time, institutional debt and equity experienced significant growth, and with the booming real estate industry in the late 1990s, the
When the real estate markets began booming in the late 90’s, accompanied by a huge growth in available institutional debt and equity, the hard money business lagged behind. Conequently, the rates and fees charged by hard money lenders fell. As a source of investment capital, the hard money business remained a useful source of funding especially for land acquisition and development. Hard money loans help companies engaged in real estate bankroll residential or commercial development projects like condominium conversion or building of new structures and fund the acquisition of new land for expansion. When it comes to residential housing, hard money loans may be used by harried homeowners to address their delinquent mortgage payments and prevent foreclosure.
As private lenders who can make quick decisions, hard money lenders tend to be more accommodating and are not held back by regulatory restrictions the way banks are. The hard money lender will simply require enough collateral and viable financial standing from would-be borrowers to guarantee loan repayment. As such, they take on higher risks than traditional banking and lending institutions. This being the case, hard money loans are more costly. The speed of granting the loan varies – there are direct lenders, and there are those who turn to other fund sources, thereby lengthening the time with which a loan is approved or denied.
In the contemporary age, as unscrupulous fee collectors have diminished, the hard money business has gradually evolved and overcome its unfavorable reputation, and is now accepted as a part of the real estate finance industry. Hard money lending can bring value-added opportunities to those in the know, especially because it can lead to additional financing possibilities as projects progress.
There are some myths to be debunked in connection with the business of hard money lending. First and foremost, the phrase hard money loan does not connote that the lender is hard to deal or transact with. The notion that the terms may be hard to accept may hold true for some shrewd, budget-conscious people, but generally, hard money loans now offer reasonable terms.
In truth, it is the circumstance surrounding the loan request, which must be matched with the high risk involved, is what makes this type of loan hard. Hard money loans usually meld debt and equity risk. On the part of the borrower, he or she must be able to discern the reputation of the lender; its stability; and the conditions that come with each proposal.