Guide to hard money lenders

Hard money loans are usually privately financed loans, unlike those offered by a bank or other financial institutions. They are a specific asset-based loan set against real estate. A private hard money lender, sometimes known as a Las Vegas hard money lender, will lend money to more high-risk companies or individuals because they can charge a higher interest rate.

Another major difference between a hard money loan and a conventional loan is that the latter is not based on a person’s credit-rating but instead on the value of the project after its completion.

The most common reason for seeking a hard money loan is to get the money faster. Bank loans take time, whereas money from private investors could be in the hands of the applicant in as little as 24 hours. This is an especially important consideration when bridging loans are needed.

Using a hard money lender is also a creative way to finance a real-estate investment. If enough money can be borrowed to buy a property and pay for renovations and repairs, so that it can be sold on quickly for a profit, then the rewards out-weigh the expense.

Because they do not usually conform to standard commercial loan guidelines, commercial hard money lenders may be the only answer for borrowers with a commercial property. They may be in financial distress, or have a commercial property that has not been completed during construction, have its building permits in place, or simply be in a good marketable condition. Regular banks would have no interest in providing loans under these conditions.

A benefit of using hard money instead of bank financing is that hard money lenders are not overly concerned about an applicant’s credit rating or debt-to-equity ratio! They are much easier to work with than banks as they are less inclined to ask for documentation like W-2’s, financial statements or income tax returns. Stated income and the ability to repay the loan based on the project are usually considered sufficient to approve a borrower.

The risks to the borrower are obvious. As well a paying a higher interest rate than on a regular bank loan, a defaulting borrower will lose his collateral the property the money was loaned against or may be forced to take out a second loan to cover the first.
The risks to the lender are covered by the higher interest rates and the possibility of acquiring a property with a greater value than their original investment.

Before applying for a hard money loan, it is important to ensure there is a good business plan in place and an excellent strategy for how the funds will be paid back. There must also be a credible profit margin. The investors want a return on their investment, and without a good profit that won’t happen.

Every project must have an exit point for the investors. The investors want to know when they will get their money back with their profit. They usually want to get their money back in 5 years or less. Many private investors are retirees looking to use the profit from their investments in the short, rather than the long term.

A hard money loan allows for the borrower to establish credit worthiness. The borrower may then be eligible for different loans, with better interest rates, from banks or other commercial enterprises.