If you’re seeking funds for investment but don’t have a sufficiently high enough credit score to secure a traditional bank loan, a hard money loan could be a viable option for you. According to Investopedia, a hard money loan is one which is backed by the value of a tangible asset.
Hard money lenders are generally investment firms or companies that provide loans based on the face value of the assets being pledged as collateral. Read on to learn more about how these loans work.
What is Hard Money?
Most lenders require the borrower to provide proof that they can repay the loan. Typically, lenders are interested in your income history and your credit score. If you have a history of borrowing responsibly and are able to prove that you have the ability to fulfill the terms of the loan agreement, your loan request will be approved.
However, traditional lenders generally take a long time to process and approve loan applications—even if the borrower has plenty of income and a great credit score. It can take even longer if there are any negative items in your credit report.
Hard money lenders, on the other hand, take a different approach. Since they lend money based on the collateral, they’re less concerned about your credit score or income history. The face value of the assets pledged as collateral is considered more important than your financial position.
Why Consider Hard Money?
Since hard money lenders face a higher risk, the interest rates you get with asset-based loans are slightly higher as well. But with that being said, hard money lending offers a number of advantages over conventional unsecured bank loans.
- Speed: Since hard money lenders mostly focus on collateral, the loan can be close much more quickly compared to a traditional loan. The process can be even quicker if you have good relationship with the lender.
- Flexibility: Hard money loan agreements are typically more flexible compared to conventional loan agreements. Instead of using a standardized underwriting process, hard money lenders analyze each deal individually. You may even be able to tweak terms of agreement, such as the repayment schedules, depending on your situation. If you’re borrowing against a different asset you own, that asset’s value is what the lender cares about.
- Approval: Like we’ve mentioned, the collateral is what’s most important to hard money lenders. If you’re seeking funds to purchase an investment property, the lender will loan you an amount that’s equal to the property’s worth. The loan-to-value ratio you get from the client depends upon the liquidity of the asset pledged as collateral. Lenders prefer assets that can be sold quickly.
In the absence of traditional finance, hard money loans open a fast and easy gateway to the world of instant capital, which allows you to keep moving forward. If you’re looking to secure a hard money loan in Des Moines, IA and Detroit, MA, get in touch with Global Capital Partners Fund LLC.