4 Scenarios for Which Hard Money Makes Sense

Banks and credit unions are the first places many people go when they need to borrow. Business owners go to banks as well, but they also go to private lenders. They sometimes find that private lenders are more amenable to meeting their funding needs. Take hard money, for example.

Hard money lending is a form of private lending that focuses on hard assets rather than the typical lending criteria. Hard money lenders are more interested in the value of collateral than credit scores, cash flow, etc. And even though hard money is not the right option for every funding need, it is the perfect solution for many.

Here are four scenarios for which hard money makes sense:

1. Limited Time for Closing

There are times when a borrower needs to close on a loan quickly. For example, consider the real estate developer with an offer in on a very lucrative property. The owner is expecting to close very quickly. With so many other buyers waiting in the wings, the buyer with the offer on the table needs to get a deal done fast.

Banks could take weeks to approve a loan for this type of thing. On the other hand, a hard money lender like Actium Partners in Salt Lake City can get the deal done in days. Less complex deals have been known to be completed in under 24 hours. When you have limited time for closing, hard money beats bank lending any day.

2. When Bridge Funding is the Goal

Property investors of all stripes turn a hard money when bridge funding is what they are really after. A bridge loan is a short-term loan intended to provide funding while waiting on revenue or income from other sources. Perhaps an investor wants to purchase a property today, while he also has another property up for sale.

The revenues from the sale will cover the purchase of the new property, so a bridge loan makes sense. It provides the needed funding that will be repaid once the second property is sold.

3. Borrowing to Flip Houses

Hard money can be the funding option of choice for house flippers for whom timing is everything. Making money in this market requires flexibility and speed. As such, house flippers do not have the time or ability to go through traditional banks. They need access to fast funding that allows them to purchase and renovate homes rather quickly.

4. Borrowing with Poor Credit

A fourth scenario for which hard money lending makes sense is attempting to borrow with poor credit. As you might expect, banks care as much about credit ratings when loaning to businesses as they do when loaning to individuals. Poor credit could be enough to kill a business owner’s expansion plans by preventing him/her from obtaining bank loans.

Hard money lenders are not as constrained by credit ratings. They base loan decisions primarily on hard assets offered as collateral. Thus, a borrower with poor credit still has a realistic chance of getting a loan if the offered collateral carries a high enough value and has reasonable sale potential.

Contrary to popular opinion, hard money lending is not a means of last resort. Unfortunately, it is often characterized as such. The truth is that hard money lending is an alternative to traditional bank lending that is appropriate for a lot of different applications. Hard money lenders can do things that banks cannot. They can offer deals you will never find at a bank. As such, hard money lending is a legitimate option a business borrower should be looking at.