If there is one thing that we know about hard money lending, it is the fact that the one-size-fits-all approach does not apply. Banks use that approach. So do credit unions. Hard money lenders do not. They are much more flexible and accommodating.
Banks and credit unions apply a one-size-fits-all approach because they have very little choice. Their business models and the rules that govern what they do force them to structure loans that way. The one-size-fits-all strategy minimizes risk, but it minimizes opportunity as well. That is why hard money lenders avoid it.
Finding Ways to Lend
A hallmark of hard money lending is creativity. Lenders find ways to lend even when deals look like they cannot be done. Salt Lake City’s Actium Partners is a prime example. Actium has been known to go to great lengths to get loans approved and funded within 24 to 36 hours – even if that means putting a company representative on a plane to go view a property on a Friday afternoon.
Simply put, hard money lenders can be more flexible. They can look at every unique aspect of every deal they are presented with. They can find ways to overcome obstacles that would otherwise prevent banks and credit unions from lending.
Lending for Any Purpose
Another hallmark of hard money lending is that it is generally available for nearly any purpose. In fairness, some lenders prefer to stick with one or two niche industries. Yet there are lenders available to cover just about any need. Below are just a few examples of what hard money can cover:
- Real Estate – Property investors could very well be hard money’s biggest customers. Residential and commercial investors alike buy properties to develop, flip, or even rent.
- Business Expansion – Hard money is a fantastic tool for facilitating company expansion. One company might want to acquire a competitor while another is looking to open a new office on the other side of the state. Hard money can facilitate both.
- Capital Improvements – Companies looking to make capital improvements may turn to hard money for a number of reasons. Whether it is renovating facilities or an investment in new equipment, lenders make hard money available.
All three scenarios make lending difficult for banks. Even those willing to lend might still force clients to jump through hoops. They employ complicated and time-consuming approval processes that can make applying for a loan not worth the trouble.
Rates and Terms Can Vary
Hard money lenders rarely employ a one-size-fits-all approach for rates and terms, either. They look at each loan application based on its own merits. Where terms are concerned, a lender may typically prefer to keep things at one year or less. But under extenuating circumstances, a two- or three-year term might be possible.
Where interest rates are concerned, hard money lenders take all sorts of things into consideration. Whatever number they arrive at is commensurate with the risk they feel they are taking. More risky loans will have higher interest rates than their less risky counterparts.
Different Types of Collateral
Even collateral is up for grabs in the hard money industry. Though most borrowers bring real estate to the table, acceptable collateral could be anything that makes a borrower comfortable. It could be existing business equipment, for example. Collateral just needs to have enough value to cover the amount being loaned.
Banks and credit unions are known for applying a one-size-fits-all approach to all of their loan products. The same is not true for hard money lenders. Hard money is a lot more flexible and accommodating.