Can Hard Money Loans Be Fast and Safe?

From the borrower’s perspective, speed is of the essence. One of the main benefits of hard money lending is having access to cash as soon as an opportunity presents itself. From the lender’s perspective though, loans have to be safe. Lenders cannot afford to hand out money without being reasonably assured they will get it back.

The short answer to the question is ‘yes’. Hard money loans can be both fast and safe. It boils down to how loans are approved.

The Basis of Credit

Hard money loans are a form of credit offered by private equity lenders. And like any other form of credit, a borrower has to have a basis on which to borrow. In other words, what does the borrower bring to the table for the purposes of giving lenders confidence they will not lose their money?

The basis for a hard money loan is collateral. Your typical hard money loan is made against real estate for the simple fact that real estate is easy to value and equally easy to take possession of any event of default. For the record, all of our hard money loans are made against existing real estate assets.

By contrast, a bank looks at a lengthy list of additional criteria to determine credit worthiness. Not only will they look at assets, but they will also look at the borrower’s credit history, income, and so forth. That is why banks move so slowly. They have a lot more things to look into just to establish a basis for credit.

It takes us comparatively little time to determine the value of a piece of real estate. A broker price opinion and independent appraisal are really all that is required. So while banks can have you waiting for weeks or months, hard money lenders offer a much faster approval process.

Guaranteeing Lender Safety

Offering hard money loans faster than banks is one thing but doing so in such a way as to guarantee our financial safety is another. One of the tools we have in our pocket to ensure we do not get the short end of the stick is what is known in the mortgage industry as loan-to-value (LTV) ratio.

The LTV ratio is simply a representation of how much we are willing to lend compared to the actual value of the property in question. We will pick a number out of thin air for illustration purposes. Let’s say our LTV is 75%.

You might want to borrow hard money on a piece of Salt Lake City property valued at $200,000. Our LTV ratio says that we will only loan the maximum of 75% of that value – or $150,000. This protects our interests in the event of default.

By lending less than the value of the property, we account for our own costs should it ever become necessary to repossess and sell it. It protects us against the very real possibility of having to accept less than what the property is worth at auction.

Yes, hard money loans can be both fast and safe. Because we do business differently, we don’t have the same kinds of requirements banks are known for. We can get you the cash you need quickly while still protecting our own interests.