I do a tremendous amount of research into hard money lending as part of my job. Much of what I have read prior to taking this job led me to believe that hard money was a scam that prayed on people with poor credit scores. It turns out I was wrong. I was terribly wrong.
Hard money’s strength is its ability to meet financial needs that traditional lenders will not touch. When other options fail, hard money often succeeds. Hard money is actually a particularly good financing tool that plays a critical role in the modern financial environment. Without it, a lot of people would not be able to do what they do.
The Basics of Hard Money
Much of the misinformation pertaining to hard money lending is due to ignorance of how it actually works. Hard money lenders, like Salt Lake City’s Actium Lending, are private lenders. They are not banks, credit unions, or non-qualified mortgage lenders.
It is also important to note that hard money lending is asset-based. Firms like Actium base approval decisions primarily on the value of the collateral a borrower is offering. By contrast, traditional lenders need to consider a borrower’s perceived ability to pay. That’s why traditional lenders often leave no stone unturned in trying to understand a borrower’s financial position.
This is important because so many people falsely believe that hard money lending is designed mostly to help people with poor credit scores get loans. It is not true. Hard money lenders don’t look at credit scores when making approval decisions. If they look at them at all – and that is a big if – it is only to help determine interest rates and loan terms.
Different Needs Funded
Given the title of this post, you might be confused at this point. If hard money doesn’t go to people with bad credit scores, what other scenarios represent a financing failure that would lead a borrower to a hard money lender? The best way to answer the question it’s through a real-world example.
Actium Lending was once contacted by a customer looking to buy a manufactured home park. He had enough cash for a decent down payment and several properties he could use as collateral. But going through a traditional lender was not possible because the deal was time sensitive. In essence, the borrower couldn’t wait three months to get a bank loan. The seller wasn’t willing to wait that long.
The time factor dictated that traditional funding failed. It just was not going to work. But hard money could, and did, work. Actin was able to approve and fund the loan in a matter of days. The deal was saved, the customer was happy, and Actium was able to successfully lend based on a proven business model.
Another Borrower Problem: Nontraditional Income
Speed is a crucial factor for a lot of hard money borrowers. But are there other reasons traditional lending fails? Absolutely. Imagine making your living as a real estate investor. Your income is based on your investment returns rather than on a standard job that pays a salary.
While you can pay your bills just fine, a lack of traditional income is a problem for traditional lenders. They don’t know what to do with it because you cannot furnish paystubs, W2s, and other similar documents. But that’s not a problem for a hard money lender. Lenders like Actium couldn’t care less whether your income is traditional or non-traditional.
The fact is that hard money can succeed where other options fail. That’s why it continues to be a valuable funding resource for investors, business owners, and others.
