Situations When Hard Money Loans Are Utilized

Owners of commercial properties have capital needs for diverse purposes such as purchase and renovations. In a perfect world the owners of the home would seek out conventional lenders such as banks and credit unions since they would most likely offer the lowest cost pounds. Oftentimes traditional financing is not available to the debtor or perhaps the debtor would not want to link up personal funds to finance the project at hand. florida hard money loan

In today’s more advanced borrowing world traditional lenders cannot fulfill all of the needs of commercial borrowers. Often these debtors look to Private Loan providers to move their tasks along. On the surface one may question why a borrower would be willing to pay much higher interest levels to Personal Lenders (Hard Money Lenders) and may instead choose not to pursue their project until traditional auto financing could be found. 

Hard Money Loans are typically short in duration and come with higher interest levels and fees when as opposed to traditional financing. To get borrowers the analysis is about their objective and the planned realization of profit from the doing the project. Hard Funds Loans play an more and more important part in the commercial real estate world. Here are some occasions where Hard Money Lending options will make sense for credit seekers.

Capital Improvements

If a capital improvement, repairs, or renovations are needed to the property which if completed would enhance the value of the property from both a value and/or rental income perspective – a borrower may look to the shortest duration – higher interest loans as a witty move to achieve the innovations to their properties. Generally during these situation once the work is complete and the increased value and/or rental income is realized the borrowers can look for more traditional financing and pay off the Hard Money Loan provider and replace the money with lower cost loans. Or they may look to sell the house and take the profit and move onto their next project.


If a borrower are the owners of a piece of raw land and hopes to proceed with a “ground-up” development – Hard Money Loans may be a source of auto financing that they cannot find in the conventional marketplace. Loan providers will look at a host of variables when assessing the credit value of the project including the borrower’s development experience, collateral, timeline, borrower’s value in the project, job presentation, and the financial reserves of the debtor. Weakness in one or a combo of these factors could potentially cause a traditional lender to decline the job financing.

Hard Money Loan providers will consider the same factors but often consider them different in making their final determination. Typical lenders will often put caps on the building loans that they make as a portion of the total development costs. In contrast, Hard Cash Lenders may lend up to 100% (or more) of the construction costs if the analysis of the project warrants such. In other words – where conventional lenders are limited in the range of the loans they can be willing to make – Hard Money Lenders with life experience in development may weigh the charm of the entire project in their determination and ultimate decision.

Acquiring a Real estate

When borrowers are considering purchasing a property usually the timing of the purchase is critical. Hard Money Lenders service this market and provide a powerful tool in the purchase process. Attractive real real estate opportunities and strategic property purchases tend to be time very sensitive. Traditional lenders are typically not able to provide financing quickly and therefore tend to be not a good alternative in these kind of real estate deals. Hard Cash Lenders are nimbler and able to evaluate, accept, and close loans more rapidly than traditional lenders.

Undervalue/Underperforming Properties

Undervalued properties or properties that are executing below market efficiency are excellent prospects for Hard Money Lenders. Traditional Loan providers avoid these loans because of to the underwriting recommendations related to income claims and current expenses. Found in contrast Hard Money Loan providers focus generally on the significance of the underlying property. Using a properly constructed loan a property investor can obtain the required financing to provide time to increase the property, fill vacancies, increase rental income, and get expenses in line. When the property is stable the investor can seek traditional financing to lower interest costs in the years ahead.