How many times have you read posts from financial “experts” referring to hard money as a last resort funding option? Sometimes the so-called experts give the impression that hard money is for losers who are willing to be taken advantage of by predatory lenders because they need money so desperately.
Most of the hyped-up talk surrounding hard money is just that: hype. Strip away all the sensationalism and you eventually discover just how valuable hard money is to the financial services environment. Not only is it not last resort funding, but it is also the first choice for all sorts of borrowers.
Full Faith and Credit vs. Assets
One of the biggest misunderstandings with hard money relates to credit score and history. Lenders like Salt Lake City’s Actium Partners do not put a lot of effort into running credit checks on potential borrowers. That’s why it’s possible to get a hard money loan even with poor credit.
This fact leads some people to believe hard money is a last resort option. What they do not realize is that hard money’s lack of emphasis on credit rating and history does not equal reckless lending to anyone and everyone.
Where a traditional bank relies on the full faith and credit principle to approve loans, hard money lenders rely on assets. Any borrower looking for hard money must have an asset capable of backing the loan. To a hard money lender, valuable assets are a lot more important than credit histories.
Lenders Don’t Want to Be Landlords
As the conventional thinking goes, hard money is a last resort option through which predatory lenders prey on vulnerable borrowers. Lenders allegedly make risky loans because these represent an easy way to obtain assets at a lower cost.
Again, such assumptions are completely false. As Actium Partners explains, hard money lenders do not want to be landlords. They are not in the business of owning and renting properties. They certainly don’t want to have to go through the hassle or spend the money associated with loan default.
Hard Money Is Fast and Available
Not only is hard money not a last resort funding option, but certain types of borrowers also rely on it as their first option. Why? There are two reasons, beginning with speed. Hard money lenders work a lot faster than their traditional counterparts. That is important to certain types of borrowers.
In Actium’s case, they once helped a client who called them on a Friday morning in a panic because his bank backed out of a real estate transaction that was scheduled to close on the following Monday. Actium had an appraiser on site that afternoon. The appraiser gave the thumbs up, Actium prepared their paperwork in the office that afternoon, and the loan was funded Monday morning.
The second reason is that hard money is available for projects that banks are hesitant to get involved with. Simply put, it can be difficult to get your bank to go along with a commercial property investment or an expansion of your business. There are just certain types of loans that banks are reluctant to make.
Because hard money lending is asset-based, lenders are generally willing to look at projects banks would prefer to avoid. As a result, there are plenty of regular hard money borrowers who never bother going to a bank.
It’s Just Different
The long and short of it is that hard money isn’t only for financial losers who can’t get traditional financing. Hard money is not last resort funding. It is just a different kind of funding. And for many borrowers, hard money is the only way to go.