What is a hard money loan?
Before any misconceptions are made you should know what a hard money loan is! A hard money loan is a type of loan in which private investors lend you money on the value of their physical property. This is not your average loan, where money is taken from a bank or another financing business.
This asset based loan financing is very secure as it basically receives funds secured by real and actual owned property. The process can be described as “personal.” More evaluation is done by the broker to better suit the needs of the investor in need. In essence this type of loan is more personalized because a broker will be able to work more closely with the client, in comparison to getting a loan from a bank.
Common Myth: Not Trustworthy?
For people who are not familiar with financing terms, hard money lending is a legitimate option to financing an unfinished construction site and can be easier to go through than a bank. Banks usually have more rules and regulations, and can take longer to come to you with an answer on your pending request.
The reality is that people who turn to hard money loans usually do it for a reason. These reasons can range from, not having passing credit, to not having any credit at all. There are times where a project is too risky and a bank will not take the risk. That is not the case for hard money lenders, as they analyze the situation more than the banks and charge a higher interest.
This myth is debunked because these lenders are and have to be credited and approved businesses by the state just like a bank would.
Common Myth: Hard money lenders are the “loan sharks” of the finance industry?
This myth is one of the more offensive ones to people who work in the industry. Hard money lenders are usually successful business people within the community they invest in. Simply trying to benefit the company and the client. It is not right to portray investors in that light. In some situations hard money lenders are the ones who can be the game changers in saving a project.
This myth is debunked because you can’t prove that these lenders are in the same water as loan sharks!
Common Myth: Hard money loans are difficult to obtain?
Nothing is easy! There is always a possibility that something can be difficult to obtain. But these lenders do in depth research on your needs and situation, which usually impedes some of the difficulty. In most situations little information is needed, the information needed though is usually based on the value of the property. This is a very different approach compared to a bank where they might take weeks to review with investors and committees. What makes these loans even more accessible is they can work with properties in poor conditions and are able to quickly fund.
This myth is debunked because it is not difficult to obtain compared to a bank!