All Hard Money Is Private Money But Not Vice-Versa

All Hard Money Is Private Money But Not Vice-Versa
All Hard Money Is Private Money But Not Vice-Versa

Asset-based lending is fairly easy to grasp if you understand the principle of collateral. When a client applies for an Actium Partners loan, they also offer an asset as collateral to back the loan. Our decision is based primarily on the value of that asset.

From our perspective, we need to see enough value to cover the loan. Combining a high-value asset with a sound exit plan makes a borrower what we would consider a quality borrower. Rest assured that we truly appreciate quality borrowers.

Also note that asset-based lending involves a much simpler application and approval process. We do not require as much from the borrower simply because we put so much stock in asset value. By contrast, traditional lending is based on the borrower’s full faith and credit.

No Stone Left Unturned

In a full faith and credit scenario, lenders can leave no stone unturned in their attempts to determine whether a borrower is creditworthy. This explains why traditional lending involves such a complicated application and approval process.

Traditional lending involves a ton of paperwork. Documents need to be completed and submitted. Borrowers need to submit income records, profit and loss statements, and more. The loan application goes from one desk to another until the approval and underwriting processes are complete. It is all for a purpose, but it all takes time.

Hard Money Is Fast Money

Comparing asset-based lending side by side with lending on full faith and credit clearly demonstrates a difference in speed. Therein lies the next critical difference with hard money. Hard money is fast money. Loans are approved and funded quickly; much more quickly than traditional lending can offer.

Furthermore, the concepts of collateral and speed are that which set hard money lenders apart from more traditional private lenders. There are private lenders who also lend on full faith and credit. They follow processes similar to those followed by banks and credit unions. As such, they are not true hard money lenders.

A Time and a Place for Everything

None of this is to say that traditional lending is bad or inferior. Banks, credit unions, and private lenders following the traditional lending model all have a place at the funding table. In short, there is a time and a place for everything.

Hard money isn’t necessarily superior. It is just different. It is based on a different business model and designed to meet different needs. And when hard money is the best option, it tends to be the best option by far.

In the end, all hard money is private money. But not all private lenders are hard money lenders. If you can square the differences in your mind, you will be better equipped to seek out the most appropriate funding option for your needs.