What is Private Lending, Hard Money Lending, and Asset-Based Lending?
For investors and borrowers who are not well-versed in the industry, private loans and hard-money loans are largely the same thing. There are a few reasons why these two terms are used when discussing these types of loans.
First, these lenders source their funds privately and are not regulated like deposit-taking institutions (banks). As a result, they’re able to close any loan that fits their own lending criteria, because they are using their own funds, or money invested for the purpose of lending, by sophisticated investors, to make the loans.
Second, hard-money loans are referred to this way because lenders use the "hard asset" such as real estate as collateral to back the loans.
We focus on single-family homes (non owner-occupied) and commercial properties. This is because our lending guidelines include a low loan-to-value ratio which uses the borrower’s equity in the property (as well as our first lending position) to act as security.
Typical Hard Money Lending Scenarios
There are many situations in which a hard-money loan may be suitable. In our case, we usually originate because the loan being sought doesn’t qualify for typical bank lending. Reasons include, for example, 1) loan not for a primary residence, 2) loan for renovation and resale, 3) the borrower has insufficient credit history (thin file client), or 3) the term of the loan sought is too short for a bank. (We typically lend for 12-24 months, but are flexible and understand every situation is different).
Additionally, private or hard-money loans can be accommodating when borrowers need to close their transactions quickly. For instance, if a borrower wants to fund a transaction on an investment property which has yet to become income-producing, but is fully funded with owner’s equity, a bank will very rarely fund this type of transaction.
In the case where the bank would not lend, our loan could save the owner from losing the property in a forced sale by allowing him or her to complete the project and begin producing cashflow. Even in the case where the bank would lend, the speed with which we would fund this loan could mean the difference between success and failure of the project. In this case, our loan would act as a bridge loan.
Every loan must be assessed prudently to ensure that it fits our guidelines, but because we are faster and more flexible than banks, we tailor a solution to lending requests that make sense to our borrowers when other sources of financing were not available to them.
Why Choose a Hard Money Loan
Choosing a hard money loan can provide you with huge benefits. Some reasons why a hard money loan is the best fit for your financial needs include:
Non-Traditional LoanTraditional lenders are not comfortable funding loans that do not meet their strict criteria, which is when we can step in.
TimingTraditional financing can take a long time do to the lengthy due diligence process, but we can act fast since we lend our own capital.
Credit IssuesMinor credit issues are often deal breakers for traditional lenders, but we will work with you to get you the funds you need.
Upfront CostsTraditional lenders may charge upfront costs and fees making their loans less attractive to you as a borrower.
PricingHard money loans and bridge loans are often times cheaper alternatives to more traditional financing mechanisms.
DiscountingWhen banks change their lending criteria they will offer discounts to incentivize you to pay off your loan now, which we can fund.
Our process is straightforward - all that we require is a one-page application. We lend to non-owner occupied properties.
Bridge loans, individually structured loans, traditional structures, partnerships, syndicated loans, and more.