Understanding the basics of hard money loans

Hard money loans are normally short-term loans offered to real-estate business individuals or companies to help them finish their projects. The loans are usually offered by private financiers who, in most cases, do not use conventional standards to prolong credit to debtors. However, the terms of the hard money lenders are normally around 12 months but go up to 2-5 years, depending on the project agreement.

So, when you are planning to get a hard money loan, these are the most important things you need to know:

  • Hard money lenders only provide these loans to people who want to buy residential or commercial real estate and will be able to pay within a short period of time.
  • These loans are easy to acquire but at higher interest rates and lower loan to value ratio.
  • They are given on a collateral basis, and when the borrower defaults, the lender collects the collateral. For instance, if you borrowed the money and bought a commercial residence but failed to pay the loan, the lender would take the residence.
  • The funding time frame is always shorter because the loans are based on the financial status of the borrower.

What are some of the benefits of hard money loans?

Some of the advantages include:

  • Solving financial emergencies as they are approved and funded immediately depending on the property project.
  • Providing alternating funding. For example, if your bank delays funding your project because of internal bureaucracy, hard money lenders can fund it.
  • Flexibility of the agreement over traditional or bank agreements because they don’t use the underwriter to evaluate a loan application meets the requirement.

The Bottom line

If you have just identified a suitable business opportunity you would like to exploit but have inadequate money to start, a hard money loan can come in handy to successfully help you do business and get established.

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