For business owners and property investors, there are many ways to go about getting a loan. Here, we break down the “pros and cons” of trying to obtain hard money loans.
These loans are ideal for many reasons – if you need cash fast, if you are looking to gain possession of an investment or foreclosure property that may get sold quickly or if you have been previously unable to garner a loan from a conventional lender such as a bank, you can still obtain hard money loans.
First, having a solid grasp on what exactly this type of loan is can help you determine if it’s right for you. These loans are defined by the fact that they are given by a private company. While conventional loans from a bank have a longer pay back period, you will need to provide some hard evidence that you will be able to pay back the loan and details about exactly how you intend to do so. You will likely need to have very high credit as well as a solid business plan, collateral and/or equity.
However, the good news is that with hard money loans, you won’t have to worry about a perfect credit history or any of the other bureaucracy typically associated with a conventional long-term loan with a bank. Private lenders for these loan focus mostly on the collateral you are willing to bring to the table because ultimately, if you cannot pay off your loan, your collateral will be obtained by the private lender and sold to cover the remainder of your loan debt. It’s basically the lenders way of ensuring they won’t be out the money if you can’t repay the loan. If you don’t have the collateral to back it up, lenders may start looking at your credit score and other aspects more closely.
The bottom line is that these types of loans serve a specific purpose and can be beneficial in those cases.
For people looking to obtain cash fast, who have been rejected by a conventional lender or who want a loan with a shorter duration between about three to five years, these loans are ideal. Sometimes they do not have a prepayment penalty either, so you can repay the loan whenever you want (and save on some of those high interest rates!).
There are two sides of the coin when it comes to hard money loans, which means with benefits, come drawbacks.
Some of the “cons” of this type of loan include those aforementioned high interest rates typically associated with hard money or short-terms. The typically APR is more than 10 percent of the loan amount. You may also have to work on your credit score if you don't have much collateral to put down toward the loan. All in all, if you need cash fast and aren't willing to sacrifice losing out on a great investment property or foreclosure, this is the perfect type of loan for you. If you are confident about the fact that your business can maximize potential earnings due to the loan, by all means move ahead know that you are now educated about this type of loan, and it’s pros and cons!
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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