Hard Money Fully Explained In 5 Simple Points

Hard Money Fully Explained In 5 Simple Points

Hard money lending is a unique type of lending most average consumers will never utilize. As such, it is not widely understood by those outside of our industry. This isn’t a bad thing except when an individual or organization who could actually benefit from hard money lending doesn’t know enough to look into it.

Hard money is not difficult to understand. In fact, its foundational principles are pretty basic. Below is a full explanation of hard money in five simple points. If you can grasp these five points, you will know enough about hard money lending to determine whether it is an option worth considering.

Point #1: Hard Money is Private Money

The first point relates to hard money sources. Hard money is provided by private lenders. A hard money lender could be an individual with a sizable amount of personal wealth they are willing to lend out. Individual hard money lenders are the exception to the rule, though.

Most sources of hard money are small companies established as private lenders. Investors pool their money through the company. The company then turns around and lends to qualified applicants.

Point #2: Hard Money Is Primarily Used for Real Estate

Though there are exceptions to the rule, the vast majority of hard money loans are used to secure real estate transactions. Moreover, most borrowers looking for hard money to get a real estate deal done are investors.

One investor might be interested in obtaining a downtown Salt Lake City office building. Another might be looking at a multi-unit apartment complex. Still another might be interested in a Provo strip mall. Hard money facilitates commercial real estate transactions more easily than traditional lending.

Point #3: Hard Money Is Secured by Assets

Hard money is so named because lending is based on using a hard asset as collateral. Given that most hard money loans are intended for real estate, the property being acquired can act as collateral. Hard money lenders still utilize loan-to-value (LTV) ratios to help determine how much they are willing to lend.

There are times when hard money is used for some other type of transaction. In such cases, the borrower could still offer real property as collateral. Other assets can be considered based on the policies of the lender.

Point #4: Hard Money Lending Is Fast

Because hard money lending is asset-based, there are fewer paperwork requirements and less work to be done by underwriters. The result is a comparatively fast process that gets loans approved and funded much more quickly. Turnaround is generally no longer than a few days. Here at Actium Partners, we have been known to turn loans around in 24 hours, when circumstances warrant.

Point #5: Hard Money Lending Is Short Term

In addition to all the other things that make hard money distinct and unique, hard money loans differ from traditional lending by way of their short-term nature. One to two years is about average on a hard money loan. However, loan terms can be as short as six months in some cases.

Keeping terms short benefits both lender and borrower. It allows both parties to get in, achieve their financial goals, and get out quickly. That way, neither one ties up financial resources for years on end.

You should now understand the fundamentals of hard money lending. You will find differences in the details among a variety of lenders, but the basic points outlined here tell you pretty much everything you need to know to decide whether or not hard money is an option you should consider.