Hard Money Loans for Investment Projects

Talented investors know that timing is everything. Unfortunately, in the world of financing, freeing up liquid assets is not as timely as investors need it to be. However, with hard money loans, borrowers can get the funds they need immediately to secure investment opportunities. A hard money loan is defined by its brevity and its high loan-to-value ratio, interest rates and fees. While that sounds menacing (and it can be risky), these loans are meant to be repaid quickly, often in as little as 30 days, and with the expectation that the required funds needed for repayment are not far from liquidation.

The most common use for hard money loans is in commercial real estate investment. Securing traditional mortgages can time consuming, often taking as long as two to three months to open. Bank mortgages require extensive inquiries into the borrower’s credit history, investment experience and net worth. Hard money lenders, on the other hand, forgo much of the underwriting process in order to secure a fast loan for their borrowers. This is beneficial when an investor is interested in a property in an promising commercial opportunity and wants to act quickly on securing the property before the asking price increases. If the investor pursues a traditional loan, the window of opportunity can close before the mortgage is finalized. With a hard money loan, funds can be finalized within days, allowing the investor to close on the property prior to working out a more permanent financing solution.

The key to hard money loans is quick turnover. In lieu of relying on extensive underwriting, hard money lenders implement a quick exit strategy as security on the loan. Lenders should be prepared to repay the loan in as little as one month or risk foreclosure. Most lenders want to avoid foreclosure, despite the low cost at which they acquired the property, because the cost of upkeep and resale is often not worth their investment. A hard money loan buys an investor some time to free up funds; it is not to be used as a long term source of financing.

The benefit of a hard money loan comes in the borrower’s belief that the investment being procured will yield the highest return when acted upon immediately. Thus the high interest rates and fees of a hard money loan can be justified by the prospect of an even higher return on the investment. Hard money loans are not for everyone, but when an investor needs to move fast on an opportunity, they are often the best means of acquiring the necessary funds to move forward.