For some people, the mere thought of asking for a loan from private lenders or hard money lenders brings up notions of your typical loan shark – someone who is going to cause you physical harm if you do not pay them back in the period promised. Well, that is going a bit too far, and this mostly happens in movies.
Sure, you can argue that hard money lenders aren’t an ideal source of finance; you would be surprised to know that there are plenty of knowledgeable and reputed private investors who willing to make invest in lucrative opportunities.
Moreover, you have also to understand that conventional loan options and lending products are growing thin with each passing year – not that they aren’t available, but they are just too expensive! Not to mention, the terms and conditions set by lending institutions are in itself frustratingly daunting. That is why many investors resort to hard money lenders who are significantly more accommodating compared to institutions such as banks and credit unions.
However, you do have to realize that getting a loan from hard money lenders aren’t exactly cheap either. But considering the ease of access to funds, private lenders are extremely well worth the money. Keep in mind that if you go to a reputed hard money lender, you may be charged up to 15% in interest in most areas in the US. But you can resort to local networking, which may end up charging you less.
The best advantages of getting financed by hard money lenders
Fast loan approval and quick funding
When it comes to local hard money lenders, one of the best advantages you can enjoy is leaping overall traditional paperwork and pre-approval conditions to acquire a loan. You see, private loans are approved and dispatched in one long meeting. And the funds can take anywhere from one hour to just a couple of days to transfer to your account.
Private lenders do not require a lot in collateral
This is the second massive benefit of hard money lending. You see, private lenders do not have the time to go through the tedious ordeal of signing documents, vetting the individual, etc. These lenders operate opposite of banks. But that is not to say that they don’t require any collateral.
The best private lender appreciates their time and your time, which is why they only ask for a legal promissory note and trust deed that you will need to sing before transferring you the funds.
The terms and conditions are significantly flexible
The terms and conditions set by private lenders are entirely different from traditional lending institutions such as banks. And that is apparent in the way the loan is authorized and transferred in just one meeting. You see, hard money lenders are also savvy businessmen and are knowledgeable investors. They look for lucrative yet safe investing opportunities. So they don’t have the habit of jumping the gun at the sound of a profit. They do their research and due diligence.
You have to understand that banks operate at a more global level, and in that sense, they are not that connected to their customers. Private lenders act as vested parties and want to see their investment bloom and do well indeed. They are always in favor of a win-win situation.
No problems with transparency
It is a well-known fact that although banks mention their fees and charges for the loan upfront on the document you sign, it is an entirely different story when you acquire the loan and start making repayments. It is impossible to read the finer details, which is why so many people fall into debt traps. This isn’t the case with private lending. These professionals are upfront about the interest rate they are going to charge, their fees, and costs. And they are going to clearly explain the fees that will be added with the principal loan amount when you start the repayment process.
Private lenders don’t care about the creditworthiness
This can be tied with the point that explained how private lenders ask for little collateral. They don’t care about your creditworthiness. However, they are going to have you sign a promissory note and trust deed, which is going to legally bound you to make repayments to them no matter how. With that being said, it doesn’t matter what your income is, what your credit score is, or whether or not you have made good or bad real estate deals in the past.
Availability of funds for the renovation
This is perhaps one of the most significant benefits of acquiring a hard money loan; you can easily acquire additional funds for renovations and other maintenance activities. Hard money investors always leave a decent margin to enable you to spend on substantial renovation or rehabilitation activities in and around the property.
No doubt getting financed fast and with as little hurdles as possible is a daunting undertaking, especially in this cut-throat corporate environment. However, there is a silver lining for budding real estate professionals or investors, and that is hard money lending. These loans are quick, transparent, and will allow you to flip a property faster than your competitor, who is going to be stuck doing extensive paperwork for a bank loan.