Advantages And Disadvantages Of Non-Traditional Financing For Farmers

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It is becoming increasingly common for the agricultural sector to have to borrow if they are to stay in business. Unfortunately, for farmers, the economy doesn’t look good yet. In fact, the so-called Farm Slump is starting to become increasingly worse.

“Farmers are enduring a multiyear slump in crop and livestock prices that is pushing many to the financial brink. Since 2013, America’s farmers and ranchers have weathered a 45 percent drop in net farm income, the largest three-year drop since the start of the Great Depression.”

The added difficulty is that the financial sector is very much aware of these problems. As a result, banks are reluctant to work with farmers and give them the loans they so badly need. The alternative, therefore, is a hard money loan, but that comes with significant pros and cons.

Difficulty in Getting Loans from Banks

Alternative financing is becoming more and more popular. In itself, that isn’t anything new. Indeed, companies like LendingClub and Upstart have been around for many years and are proving to be very successful.

Upstart is the first lending platform to leverage artificial intelligence and machine learning to price credit and automate the borrowing process. Upstart has demonstrated unparalleled credit performance and the industry’s highest consumer ratings.

Rise in Non-Traditional Lenders

What is new, however, is that the agricultural industry is starting to look towards these types of lenders. Yet, it seems to be getting so popular so quickly, that some of these non-traditional lenders have started to focus specifically on farmers, or at least to develop products specifically for farmers. These include Conterra Asset Management, Ag Resource Management, Farmers Business Network, Farmland Partners, John Deere Financial, AgAmerica Lending, and CHS.

While it is certainly true that, for many farmers, non-traditional lending has provided a respite and an opportunity to stay in business, it is important that they fully understand the associated risks. On the other hand, financial experts agree that when times are tough, tough decisions have to be made. And since non-traditional lenders have far less stringent requirements for their borrowers, it may mean having to accept that risk. Essentially, these lenders do not look at the things that happened in the past, but consider what is likely to happen in the future instead.

Warning from Financial Experts

According to financial experts, farmers should learn to see these non-traditional lenders as solutions to very different problems. A bank loan, for instance, is usually taken out to support long term growth. A hard money loan, by contrast, should be taken out to rehabilitate operations so that they can get back on track. There are very big differences between traditional and hard money lenders, and that means the purpose of the money borrowed should also be different.

Alternative lenders often make capital available for a wider variety of business owners. There may be a minimum credit score, but it’s often lower than the bank’s requirement. Alternative lenders also might not ask for a business plan and only require you to have been in business for several months.

Things to Be Aware Of Regarding Hard Money Lenders

What seems clear is that a distressed farmer or agricultural business need to exert due diligence. When money is tight, it is all too easy for people to accept just about anything that is offered to them, even if that could lead them to even bigger problems later on. When farmers are desperate, they may forget to ask about the things that actually matter. This is why it is important that they seek sound financial advice first, and that this comes from a trusted, independent, third party source. Hard money loans have significant advantages but equally significant disadvantages. Which of the two will weigh heavier will depend entirely on the individual situation.

Additionally, there is always a concern of falling victim to a loan shark.

Loan sharks thrive where traditional banking is absent. They fill an unmet need, albeit often in a heartless, exploitative way.

Because the non-traditional lending space is the perfect environment for loan sharks, it is even more important to be careful. If a lender charges an upfront fee, that is a major red flag. And even if there appear to be no red flags, it is still a good idea for any deal to be properly reviewed by a legal expert. Since no hard money lender is federally regulated, it is all too easy to get things wrong.

It is also important to ask the right questions. Finding out how long the lender has been working in this manner, and why they agree to lend to someone that a bank would refuse, is important. So is finding out how the deals are structured. Similarly, the lender should be able to demonstrate past experience in the agricultural and farming industry in particular, as this shows that they, too, understand the risks they are getting involved in.

The Pros and Cons of Alternative Lending

If used properly, alternative lending is a great way for the agricultural sector to stay afloat. However, there are big risks associated with it, and only those who understand those risks should ever really consider taking out these loans. The main advantages include the fact that:

  • The loan is flexible. There are no complicated regulatory burdens to overcome, meaning they are flexible in their repayment terms, loan amount, acceptance criteria, and more.
  • The loans close very quickly, sometimes in as little as a few days.
  • It is possible to only pay interest, although those models are a little bit harder to find. It does leave you with a balloon payment at the end, however.
  • The lenders are experienced in dealing with distressed farmers and know whether or not there is a risk worth taking.

On the other hand, the disadvantages include the fact that:

  • The loans are generally short term. That said, some lenders will consider slightly longer terms if the borrower can demonstrate why this is needed.
  • The loans require a very strong exit strategy. Because they are so easy to obtain, it is equally easy to get trapped in them.
  • There is a lot of red tape, as a full paper trail of how the money is spent is generally required.
  • The loans are very expensive, with high interest rates.

Delancey Street Now Offers Hard Money Loans In Los Angeles

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Delancey Street has recently announced that they will be offering hard money loans to people in the Los Angeles area. Their headquarters is located in New York City, with an extra office in Los Angeles. They will offer Southern California cannabis private money lending opportunities, and there has already been a lot of interest and demand.

At Delancey Street, we have a conglomerate pool of investors with great expertise in cannabis private money lending. These investors have decades of experience in the industry and have the resources to meet your needs. In addition to funding your new venture, our cannabis private money lenders can provide the assistance you need.

Alternative Funding for Those with Assets to be Used as Security

Specifically, the business helps entrepreneurs and other companies that are looking for alternative forms of funding and that have enough assets against which the loan can be secured. Not just that but Delancey Street also helps businesses that want to go public, consulting with and advising them. They find the best ways for them to raise capital, using a process known as reverse mergers.

A reverse merger (also known as a reverse takeover or reverse IPO) is a way for private companies to go public. It’s typically through a simpler, shorter, and less expensive process than that of a conventional initial public offering (IPO), in which private companies hire an investment bank to underwrite and issue shares of the new soon-to-be public entity.

Funding for Real Estate Investors in California

Real estate investors in California will now be able to finance both residential and commercial projects. The focus for Delancey Street is specifically on non-owner occupied properties, something that traditional banks generally refuse to touch. Additionally, they are happy to provide funds for up to as much as $10 million. Delancey Street officially announced their move into the Los Angeles market at the end of February 2018.

Borrowers now have a Los Angeles private money lender to turn to, when traditional financing isn’t possible. We’re setup to be your concierge lender – who acts as your partner in each and every venture. Our board of advisors include experts who’ve done hard money loans for years, and have immense experience evaluating new investment opportunities, and managing large businesses. Our goal is to be the most responsive and personalized los angeles hard money lender – with a focus on the quality of the asset, not just the investor.

Goal of Helping Developers Rejected by Banks

By providing prospective investors with loans for as much as $10 million, Delancey Street is set to really change the real estate market across Southern California. They want to work with those developers that regular banks have turned away. They aim to offer high flexibility in terms of interest rates and other condition, focusing specifically on brokers and investors who need bridge loans and hard money loans as quickly and as easily as possible.

One of the key benefits of hard money loans is that it is very easy to apply for them. Indeed, the qualification criteria are very easy to meet.

When you need quick financing to take advantage of a profitable opportunity in real estate, hard money lenders are likely to be one of the options you consider. But before they do so, you will need to meet their loan disbursement criteria so that they can be sure that you are capable of paying back the loan.

The exact Delancey Street acceptance criteria have not been publicly disclosed. However, it seems the company is looking for those investors who have significant assets against which to borrow. Usually, criteria also include tax returns, a personal financial statement, and details on the property’s value. It is reasonable to assume that the company will also consider the experience of the borrower.

Hard Money Mortgages – The New Saving Grace

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“The universe of mortgage lending has gotten to the point where there is a place in it for everybody.” – Joe Mays. As our world moves ever quicker, the star athlete absolutely hit the nail on the head with this one. Mortgages are not just for banks anymore, but they still remain for everyone. Hard money mortgages can be a realistic way for you to buy your home.

Ten years ago hard money mortgages were something that most people hadn’t heard or considered as an option. These days they are something more and more people are looking at. In 2016, non-banks were behind nearly 50% of all mortgages, which shows that people are moving away from traditional lenders.

Why Are Hard Money Loans Gaining Popularity?

After the financial crisis, people were hit hard and a number of people went into foreclosure. Many banks also took a hit – some even collapsing under the strain. This brought about new legislation and regulations that were put in place to protect people buying houses. They also protect the banks, so that they don’t run the country into a massive recession again.

The stringent guidelines that are in place mean that it’s harder than ever to get a home loan. People who are self-employed or who have bad credit won’t be eligible for a mortgage from traditional lenders. This has led to more interest in hard money lenders. When people want to save their homes, it is often the hard money lenders who help them out.

How Does a Hard Money Mortgage Work?

The first thing is that hard money lenders don’t really care about your credit rating. They are only interested in your ability to pay it back. Many private money lenders like to build positive relationships with their clients. Hard money mortgages come from a private individual or group of investors that lend money based on the property being used as collateral. It is a win-win situation for them. They invest on the basis that they get much higher returns than regular lending institutions and they are not bound by the same regulations.

Many hard money mortgage lenders consider real estate to be a much safer bet than investing in the stock market and they are probably right. Bricks and mortar can be seen – they are tangible. So, if they can help someone who doesn’t have cash to hand for a home loan, a profitable deal can be made.

If your home is facing foreclosure, a hard money lender can help you re-mortgage so that you don’t stand to lose your home. The borrower always stands to take a higher risk, but if they can see their way out of the problem in the short term, then it stands to reason that a hard money mortgage is the way to go.

A Saving Grace

If a borrower is already in trouble financially, a bank won’t touch them. A hard money provider will. Also, the money can be accessible in as little as a few days. This can be a huge lifeline for someone who is about to lose their home. They don’t have to produce a huge amount of documentation or credit checks, but they need to be aware that they could still lose their home if the hard money loan is not paid off at the agreed time.

If a borrower needs finance for a new home, a renovation or to save your home from being foreclosed on, then your lifeline could be a hard money mortgage. If they can accept that it will have to be paid back in between one – five years, far less than any traditional loan, then it could be the best decision that borrower has ever made.

Some states have a high number of hard money lenders and this means that their rates are more competitive. Those interested in hard money mortgages should contact people involved in real estate in their area to find private lenders.

Resources:

https://www.brainyquote.com/quotes/joe_mays_405263

https://www.brookings.edu/wp-content/uploads/2018/03/5_kimetal.pdf

 

 

What Can a Hard Money Lender Do For You in Today’s Market?

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Do you have a small business that needs some extra funds? A hard money lender might be the answer to your financial problems. Learn more about how hard money lenders can give you the loan you need to stay in business.

How Hard Money Lending Works

Have you tried to take out a loan with traditional banking? They often deny your request if you have bad credit or don’t have proof of a steady income. It makes it nearly impossible to keep your business running without some extra financial assistance. Therefore, some small businesses or startups have to resort to hard money loans.

Quick Hard Money Lending Process

You can easily apply online for a hard money loan as soon as you find a few that you can trust with your business. The significant part about hard money loans is everything is faster, from your application acceptance to getting the money you might need right away.

This can come in handy for those trying to build businesses such as flipping properties. If you depend on traditional banking, it might take too long to buy the property you have your eye on. Or to get the materials in time to get those renovations done. Sometimes fast money can be crucial to the success of your business when you are flipping properties or other similar businesses.

Don’t Need A Good Credit Score for a Hard Money Lender

Do you have bad credit? It doesn’t mean an instant denial of getting a loan when you go through hard money lending. Instead, a hard money lender can help you where banks and credit unions will usually deny your request when your credit is too low.

According to the Senate Committee on Banking and Financial Institutions, hard money loans are for “people with tarnished credit, whose low credit scores render them ineligible for more traditional forms of credit.” You don’t have to worry about having any other alternatives to save your business from bankruptcy.

Hard Money Lender Policies

Like with any loan, it’s better if you check each hard money lender’s policies. They will all give you different estimates on how much money you can borrow. This can be good since you find out which one offers the best deal possible, meaning you get to borrow enough without having to worry about any additional fees.

These lenders will all have different rules on any fees or points that they will charge you. So, make sure you know what each lender’s policy is with their hard money loans. These fees or points can add up to a lot of money if you aren’t careful.

Downfalls of Using a Hard Money Lender

Hard money loans sound good when you have nowhere else to turn to. However, don’t be too hasty in accepting the first offer presented to you.

High-Interest Rates and Points

Since you have to repay the loan faster than traditional lenders, prepare to pay more than you borrowed. As reported by the Senate Committee on Banking and Financial Institutions, hard money lenders give you a shorter amount of time to repay the loans.

So, this means you might have higher interest rates and points than traditional loans. Those interest rates and points can be high, so always think it over before signing up with any hard money lender.

Get Legal Advice Before Signing

A hard money lender can be helpful for businesses, but you also have to be careful with the paperwork involved. If hard money loans are your last resort, then this will make you vulnerable. They might try to add clauses that you might not understand that will add stipulations even after you repay them their money.

You should have the clauses in your deal looked over by someone who can give you legal advice on it. If you don’t, you might get yourself into something you didn’t know you agreed upon.

Are you ready to get a hard money loan? If your business is in danger of shutting down before it begins, you might need to look into getting this loan. It can save you from having to pull the plug on your business before you can make your dream job a reality. So, why not look into getting help from a hard money lender? You can go over your choices with your family or business partner and see what the best option for your business should be.

Sources: https://sbnk.senate.ca.gov/sites/sbnk.senate.ca.gov/files/final%20backgrounder.pdf

 

 

Private Lenders and Hard Money Loans

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Are you searching for a way to gather quick funds for a project or investment? You may need to turn to private lenders and take out a hard money loan to make that happen. Many people turn to hard money loans to help achieve their short – term goals or projects. Bloomberg’s Michael Sasso noted, “However, a for-profit trade group called the American Association of  Private Lenders estimates the number of hard money lenders and related  “private money” lenders at 8,300, or up almost 40% since 2016.”

What Are Hard Money Loans?

Hard money loans are secured based on real property assets. These types of loans are generally seen as last resort loans. These loans are primarily used for real estate transactions. Hard money loans are normally provided by private lenders or companies. This is different from typical loans that are provided by banks. These types of loans are taken out for a short amount of time and have higher costs associated with them. The terms of hard money loans are often negotiated between private lenders and borrowers.

How Do They Work?

The negotiated terms of hard money loans are based on the value of the property that is used as collateral. They are not normally based on the borrower’s credit or financial situation. The individuals and companies that lend hard money loans are capable of seeing the potential value in this type of risky investment. Many people who seek out hard money loans may be property investors who are searching for funds to remodel a house. They are investors who will remodel the house, or “flip” it, and resell it to make a profit. They hope to make enough money to pay back the loan and gain a profit from the collateral. Since the terms of these types of loans are so short, the borrower will attempt to complete the project within a year.

Hard money loans may be quite risky, but the higher risk is offset by some of the other values that they offer. Since borrowers intend to pay off the loan quickly, the terms are normally between one and three years. If the loans are paid off quickly, then the interest won’t accrue. This means more profit for the borrower.

Pros and Cons of Hard Money Loans

Hard money loans often have a higher cost to the borrower than traditional loans secured from banks. This is a reflection of the risk that the lender is taking. In return for this high cost, borrowers have quick access to capital, less strict approval processes, and sometimes flexible repayment plans.

Pros

One of the critical advantages of hard money loans is the less stringent approval process. For traditional loans, many banks will require the lender to provide proof of income, a credit check, and a low debt to income ratio. This can cause many potential borrowers to be declined in the process. Lenders of hard money loans can also assist the borrower in a quick approval process. They do not have to jump through the hoops that normal banks have to for approval.

Many lenders of asset-based loans do not worry as much about repayment. If a borrower defaults on the loan, then they may be able to still sell the collateral and make a profit. Lenders often take this into account and are flexible with the repayment schedule for hard money loans.

When a borrower applies for a loan through a bank the terms are normally set in stone. With hard money loans, the underwriting process is determined on a case by case basis. This allows for some negotiation between the borrower and the lender. Each side may be able to create a better lending contract for themselves.

Cons

Since the collateral of hard money loans is only the property itself they often have a low loan to value (LTV) ratio. The LTV is a term used by lenders to compare the value of the loan to the appraised value of the property. These low LTV loans are not always favorable to the borrower.

Another disadvantage of hard money loans is the high interest that accrues if the loan is not paid within a certain time period. According to the Pew Trust Foundation, the interest rates can be as high as 15 to 30%. Most borrowers can only make payments equal to about 5% interest on their loans.

Resources:

Sasso, Michael.  “Home-Flipping Trend Weakens as High-Interest Lenders Jump 40%” Bloomberg. https://www.bloomberg.com/news/articles/2019-06-12/high-interest-lenders-up-40-even-as-home-flipping-trend-weakens. Accessed 11 Oct 2019.

“From Payday to Small Installment Loans: Risks, opportunities, and policy proposals for successful markets” The Pew Charitable Trusts Foundation. Accessed 11 Oct 2019.

 

 

Benefits Of A Hard Money Loan

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Hard money loans are a fantastic funding solution for those who have difficulty obtaining more traditional loans. They can have great benefits for the borrower.

Banks and mortgage lenders can be quite strict with their lending requirements. Those can make it challenging for those with poor credit or financial hardships to get loans.

That’s where hard money loans come into play, opening up new opportunities for investing in property at a great price. You should know about some of the major benefits associated with hard money loans.

Hard Money Loans are Easier to Obtain

When you choose a hard money loan, you are able to take advantage of the benefits. That’s because hard money loans tend to be easier to obtain than traditional avenues of funding. In many cases, these non-standard hard money loans from private lenders will be approved more quickly with less paperwork.

Hard money lenders won’t do as much background research into your financial history, they can take bigger risks. Whereas banks approve or reject loan applications based on credit ratings and scores. Hard money lenders look at the value of the collateral instead. This collateral is typically a real estate property. Although there are higher risks involved, hard money lenders can justify this by charging higher interest rates and fees.

Borrowers who obtain hard money loans are not usually deterred by the higher interest rates. They don’t plan on having a hard money mortgage forever. Financial columnist and journalist  Jean Chatzky said – debt isn’t always bad, “A mortgage can help you afford a home. Student loans can be a necessity for getting a good job. Both are investments worth making.”

When it comes to deciding whether or not a hard money loan is right for you, you have to think about your likelihood of getting a bank loan and also what your plans are for the property.

Hard Money Loans can Have Benefits

One of the other things you should know about hard money loans is that they are advantageous for those looking for funding right away. If you’re in a hurry to get your funds or you’re struggling to get approved through regular resources like banks or mortgage lenders, then hard money loans can help you get the property you want or stave off foreclosure.

There’s a lot of people out there buying real estate, as the volume of loans to homebuyers looking to renovate and resell increased to about $20 billion last year. That’s a 37% rise from 2016 and nearly double the amount from five years ago. Many of these purchasers took advantage of attractive hard money loans to lessen their risk of foreclosure.

Another benefit of hard money loans is that they can come in handy if you’re trying to buy a new home while selling an old one. Perhaps you need a hard money loan to cover a down payment while the proceeds from the sale of your previous property are not yet available. If there’s not enough time or availability to get a loan from a bank, hard money lenders can help.

Both real estate investors and homeowners can refinance their properties with hard money loans. One thing to always remember about hard money loans is that you want to be quite confident your financial outlook is positive. Most people pay back a hard money loan within a few years once they sell the property. That way, they aren’t stuck with those higher interest rates forever. So whether you’re getting into house flipping or you’re eager to avoid foreclosure, hard money loans will work well as long as you’re ready to repay the loan sooner rather than later.

Hard Money Loans Assist Real Estate Developers

Those involved in real estate development may also use hard money loans for projects that won’t get approved for bank loans. For example, projects that have yet to receive final permits and approval are unlikely to receive a conventional loan because the bank can’t be positive that the project would make it past the development stage. Non-standard loans like hard money funding can be used to finance these projects. Once the permits are all in place, the real estate developer can apply for a conventional loan to repay the hard money loan.

For those real estate developers who want a more flexible funding option, it makes sense to explore hard money loans. If you are interested in hard money loans, you can always ask a reputable lender for more details.

Sources:

“Jean Chatzky Quotes.” BrainyQuote, Xplore, https://www.brainyquote.com/quotes/jean_chatzky_724897.

Sasso, Michael. “Home-Flipping Trend Weakens as High-Interest Lenders Jump 40%.” Bloomberg.com, Bloomberg, 13 June 2019, https://www.bloomberg.com/news/articles/2019-06-12/high-interest-lenders-up-40-even-as-home-flipping-trend-weakens.

 

 

Hard Money Loans: Cracking the Hard Situations

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When you’re dealing with hard situations and need help fast, a hard money bridge loan is the type of loan you may need. Many people are unaware of what a hard money bridge loan (1) is or how a hard money lender works. In its most basic terms, a hard money loan is a short-term loan secured by real estate. When you are racing against the clock to obtain a loan, hard money loans for your hard situations you can be approved sometimes in as little as 48 hours.

Length of Your Hard Money Loan

The length of your loan typically runs about twelve months, but lenders can extend it for two-five years in special cases. Significantly, using hard money loans for hard situations help crack difficult financial times.  The hard money loans are considered temporary and beneficial answers because you don’t have to pay the principal off throughout the life of the loan. You’re only paying the interest or the interest with limited principal through the loan’s life. When the loan term is over, you have a balloon payment due which includes whatever you have left on the hard money bridge loan to pay.

What makes hard money loans work, and be approved quickly, has everything to do with your property’s value. Hard money lenders may check your credit score, but they’re primarily concerned with the real estate property you’re putting up. Many hard money lenders use what’s called the loan-to-value ratio (LTV) to determine how much they will lend you.

How Fast are Hard Money Loan Lenders Growing?

It’s the LTV ratio that helps hard money lenders evaluate your loan risk. The more money they are going to lend you, the higher the hard lender’s risk. When you have assessed a higher risk based on your LTV ratio you will have to:

  • Pay a higher interest rate on your loan
  • You may be assessed additional costs, like fees or the lender may  need you to get mortgage insurance

But you won’t have any problem find a hard money loan lender. Hard money loan lenders are up 40% since 2016. There’s a lot of activity in the hard money loan markets. A hard money commercial loan lender knows each hard money loan will have different percentage rates based on how much the loan is and what their real estate property value is.

Crowdfunding companies are jumping on board to become hard money loan lenders too. They are loaning out millions of dollars at very high-interest rates which makes them a fortune. But that’s not the way the real hard money lenders like to do business. Most ethical, hard money lenders are in the business to help those who need quick loan approvals while making a reasonable profit for their business. Those hard money lenders approve their loans with a sense of fair play.

What are Hard Money Loans Used For?

Business is better than ever for hard loan lenders, but they try to “work with those who need them most.” This is usually in the low to middle housing and commercial markets. That’s the market where people who are hit with unexpected bills or events, don’t have the cushions of large savings accounts. Private money or hard money lending is also always good for certain populations or targeted groups like those who flip and flop houses. Hard money loans can be great for short-term or long-term investors who need their financing fast.

Many buy and hold investors will use hard money lending to buy and renovate properties before they refinance the homes through conventional loans. Another common hard money loan need is when long-term investors need to season their property. There are as many reasons as there are dollars to lend through hard money loans. But cracking the hard situations is done on a one-on-one case basis.

It’s not uncommon for your loan to be approved through a hard loan lender before you walk out the door. A prequalification can be faster than that. You can be prequalified in as little as three minutes. More importantly, you can get your funding, cash in hand in as quick as 10-15 days. It is the quick turnaround time, and the ability to take care of whatever emergency you’re dealing with that makes hard money loans so popular.

When You’re Ready

When your ready for your private money lender experience reach out to us. Find a hard money lender who has the expertise you need, with the interest rates and costs you can afford. You want your hard money lender to have the real estate knowledge needed to value your property fairly. Get a hard money loan with terms that help you deal with your hard situations. You can now take your first financial breath in a long time.

(1) https://www.fdic.gov/regulations/safety/manual/section3-2.pdf

Private Hard Money Lender Means Quick Loan Approval

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When you need money quickly for your business, navigating your way through the mountains of paperwork can be hard. What a traditional lender demands can make a quick loan approval deal untenable.

In this instance, more often than not, your best option is a private hard money lender. You can attempt to go the traditional route, but if your application has been rejected then you should consider a private hard money lender.

Why is it Quicker?

Private hard money lenders don’t have the same regulations as normal lending institutions. Many banks were bailed out during the crash in 2008 and new laws have rightfully ensured that they can’t simply give out loans without fulfilling some strict criteria.

This does protect consumers as well as the banks, however, it can make getting a loan quite difficult. Getting approval from a private hard money lender can be easier as they look at the information available to them on a case by case basis. Your credit score is not much interest to them, your assets are.

“Small- and medium-sized businesses need access to a diverse range of finance options, including non-bank lending. These new forms of finance are still small in scale today but they should, over time, bring additional choice and greater competition to the lending market.” Vince Cable, formerly of Shell Oil

A decent private hard money lender will look at what you want the money for, whether they are satisfied that you will be able to repay that debt on their terms and the possibility of a future relationship. Private lenders comprehend the need for quick loan approval. They are usually astute investors who know that time is of the essence in making a good deal, so they will assess your situation quickly.

How Does Quick Loan Approval Work?

Private money lenders can offer you more flexibility in terms than traditional lending institutions. However, in the majority of cases, the length of the loan will be much shorter than normal loans or mortgages. Usually, the terms are around 2 – 5 years maximum, and their interest will be higher. However, they won’t have to refer to a list of stringent conditions or board members who are imposing regulations, and not having to do this speeds up the process.

It is pretty simple to apply for a private hard money loan. First, you will need to present them with your financial data – if that is for your business that you are taking the loan against, or if it is your own personal net worth.

You also have to offer collateral. This is one of the big differences between a traditional loan and a hard money loan. In this case, the collateral is usually the property or asset that you are actually using the loan to acquire. In business, it could be against your premises as you hope to extend or pour money into a new product.

If it’s to flip a property, which many hard money loans are for, then you need to provide information on the property, the area and the potential for profit. You still have to do your homework, they just won’t spend as long scrutinizing it as a bank would. Many private hard money lenders now let you apply online, and some promise approval in up to 36 hours.

Where to Find a Private Hard Money Lender?

Over the past few years, the number of private hard money lenders has jumped. According to the American Association of Private Lenders, there are now almost 40% more since 2016.  So, it’s easy to find one, but make sure you go for a private money lender with a good reputation. You can find a host of both large and small private hard money lenders online. Don’t ignore local ones, but do try and get some referrals.

Private hard money lenders used to be viewed quite cautiously, but times evolve. In a business environment, working capital is required and often a traditional loan process won’t let you access the money in time. It can be beneficial to build a relationship with a private hard money lender to finance deals and grow your business.

Resources:

https://www.bloomberg.com/news/articles/2019-06-12/high-interest-lenders-up-40-even-as-home-flipping-trend-weakens

 

 

What Do Hard Money Lenders Look For?

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For individuals seeking capital to purchase a new home, avoid foreclosure, or make renovations, a traditional bank loan doesn’t always work out. Things like a poor credit score or little equity can quickly lead to rejection. However, in recent years, hard money lenders have provided people with a way to get the money they need for real estate projects or to keep their homes.

Unlike banks who look at a borrower’s financial history when considering whether to approve a loan, a hard money lender uses the property as collateral. This means applicants have a much higher chance of getting approved for quick cash. House flippers often turn to these private lenders to secure a new investment before it’s sold. They’re great resources for real estate investors, especially when home sales are up as they are right now. According to the Department of Housing and Urban Development, sales for single-family homes saw a 2.5% increase from June to July in 2019.

However, even though hard money lenders are concerned with credit scores, borrowers should still know what they’ll be considering when evaluating their loan application. That’s why we’re going over some of the top things these lenders keep their eye on.

The Value of the Property Used as Collateral

Because the house in question will be used as collateral against the loan, one of the lender’s primary concerns is the total value of the property.  They need to know that if the loan isn’t repaid, they can recoup their losses. To do this, they’ll need to determine the loan to value ratio. This may require having an appraiser look at the property or having a real estate agent run a broker price opinion that will analyze the value.

If the borrower is seeking a loan to complete renovations on a home they own, the lender will determine how much the property will be worth after the upgrades are made. This is why house flippers often go after hard money loans. Lenders may also include land in the appraisal of the property as well.

It’s important to keep in mind that many hard money lenders won’t give loans for properties occupied by tenants. Potential legal issues could make the loan too risky.

The Borrower’s Commitment to the Property

The last thing a hard money lender wants is for the borrower to default on the loan. This is why they look at how committed the individual is to the property before approving the loan. Yes, the lender doesn’t care about a borrower’s credit score, but they still need to have confidence that the repayment terms can be met.

If a borrower needs the loan to secure the purchase of a home, the lender may want to know if they’ve put any type of down payment towards the property. If they have, the lender knows the borrower has something to lose if they don’t make their mortgage payments. This added reassurance goes a long way.

Lenders may also want to know what the borrower’s plans are for the home. If they plan on flipping it, what renovations do they intend to make? Once they sell the renovated home, what’s their plan for paying back the loan? Many house flippers have a portfolio of investments they’ve made. This is a good tool for securing hard money loans.

The Ability to Repay

The British economist John Maynard Keynes once said, “If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has.”  Hard money lenders must take this to heart. There’s certainly no surefire way to know a borrower will pay back the loan. However, lenders can look for at a few things that will help them determine whether the venture is a good idea.

Lenders often look at a borrower’s exit strategy for fulfilling the repayment terms. For example, if they’re using the loan to secure a piece of commercial property, the lender may want to know how they intend to start earning a profit. Lenders may also want to know how motivated the borrower is to pay back the loan. If a house flipper doesn’t intend to start renovations on the home anytime soon, a lender may be hesitant to approve the loan.

Hard money lenders are investors too. Because these loans have higher interest rates and shorter terms, lenders can use the repaid money for new loans. Looking at the items discussed above is the best way they can protect themselves.

Resources:

https://www.huduser.gov/portal/sites/default/files/pdf/Housing-Market-Indicators-Report-August-2019.pdf