What is a hard money lender?

What Is a Hard Money Lender?

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Who do you imagine when people talk about a private hard money lender? Many people don’t have a good understanding of who hard money lenders are. Unfortunately, this kind of private investor is seen by many as a shady person who will break your legs if you don’t pay your debts in time. This image could not be further from the truth.

The Private Hard Money Lender

A hard money lender is a private investor or a group of investors who can offer a hard money loan. The main difference between them and banks is that they are not institutions. Their activities are less regulated, which enables them to create their own rules.

More and more people are entering the hard money lender market. Bloomberg recently reported that private credit is on the rise lately, and it is helping to fuel the current private equity boom. Private credit is now reported to be as big as $776 billion. While hard money lenders are not the bulk of those credit offerings, they are certainly an important part of them.

It’s important to understand who these investors are and what they can do for you. In fact, it’s important to understand what a hard money loan is. They are short-term loans that are generally used to buy properties. They are secured by the property that is being bought, and are considered safe investments. That is, if you are careful and only invest in property after you’ve done plenty of research.

People generally take hard money loans to “flip” houses. That means they buy a property with a low market value, renovate it, and sell it for profit. The idea is that you can buy the property quickly, fix it up, and turn a quick profit. The faster you do it, the more you’ll profit.
This activity is becoming pretty common. According to ATTOM Data Solutions, 2019 marked a 9-year high in home flipping.

Before you look for a hard money lender, you should know that they are not fit for all investments. They are most ideal if you can’t go to a bank or don’t have time for the process.

How Does The Hard Money Lender Benefit?

The hard money lender’s benefit comes from comparably high-interest rates. People who can’t, or don’t want to, use traditional lenders generally seek out hard money loans. This happens for several reasons, and they work as a second option, as well.

Loan fees can be around 5 percent, and the annual interest could easily be higher than 15 percent. Not many investments allow for these profit margins so quickly. Overall, this can be beneficial for both parties.

Another reason why people decide to become hard money lenders is that they can determine their conditions and guarantees. This gives them many advantages during the negotiation.

Lenders generally lend up to between 65% and 75% of the value of the property that they hold as collateral. But, some decide to take on more risk for the benefit of a higher interest rate. The higher the interest rate, the more profit the lender will achieve. The time frame to pay off these loans is often short. Most of them have to be paid in 12 to 24 months.

Keep in mind that fees and interest may vary a lot, though. This practice is not strictly regulated, so lenders can set prices and conditions as they wish. Do your research and tread with caution when looking for a hard money lender.

The criteria for approving loans may also vary from lender to lender. Most of the time, they don’t evaluate someone’s credit for approval. Their attention is most set on the asset that they are lending money on.

Finding The Right Hard Money Lender

If you need a loan, it is important to find the right hard money lender. You need someone that you can trust and preferably who will be near you.

You should look for a professional investor who has experience with hard money loans. Ask for referrals from previous clients or associates. Learn as much as you can about the lender’s past business practices. This will help you avoid fraudulent lenders and scammers.

You should also get to know the hard money lender before you sign any final paperwork. It’s also a great idea to ask an experienced attorney to look at the details of the contract before you sign it.

Remember that hard money loans are not without risk. If you are well-prepared, however, you’ll minimize unhappy surprises.

Sources

https://www.attomdata.com/news/market-trends/flipping/q1-2019-home-flipping-report/

https://www.bloomberg.com/news/articles/2019-09-22/how-private-credit-soared-to-fuel-private-equity-boom-quicktake

Need A Hard Money Home Loan? Expect To Pay More In Interest

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You can get approved for a loan by using your home or property as collateral. Getting a loan this way is called a hard money loan, and it’s easy to apply for and get approved. But you do need to be prepared for the higher interest rates that come with hard money home loans. Hard money loans continue to be popular. Many people use hard money loans without ever approaching a traditional mortgage lender. People use hard money loans for their mortgage for a variety of reasons.

Hard Money Loans are Often Used for Construction Projects, Flipping a House or Buying Property

Sometimes people get hard money loans to help finance a small business or project. In general, hard money loans are excellent for properties that you fix and flip, land loans, and construction projects. Julie Aragon, a Los Angeles based mortgage expert,  relays why some people gravitate to hard money loans.

“Individuals who buy properties, renovate them, and resell them for a profit are known as property flippers, will often get hard money financing because they can get the cash they need fast. This expediency is beneficial when they’re bidding on a property.”

Hard Money Loans Come from Individuals or Investors

The investors who put up the hard money loan usually require you to have higher interest rates. There are some things that can help you find reputable hard money lenders. This includes the most reasonable interest rate possible. Keep in mind if you put your home or another property up as collateral and default, the hard money lender can take that property. It’s their protection from losing the loan money plus interest they gave you.

The Hard Money Loan Lender Interest Rate Range

Financing Strategies for Real Estate Investments is a mortgage hard money lender. They lend you between 60-70 percent of what your property value is. It’s a win-win for most investors because if someone they lend to defaults on their payments, their property can be taken by the moneylender. It’s important to know that reputable hard money home loan lenders want to build a long term relationship with you. They don’t want to have to go after your home or property for a loan to be paid off. There are ways you can research and find out the difference in reputable hard money loan lenders who have reasonable interest rates and the ones you want to stay away from.

Research and Find Reputable Hard Money Home Loan Lenders

Hard money home loan lenders can charge you points and fees based on the amount of money you borrow. Since the loan points are based on a percentage of your loan, you want to be careful to figure out what one or two extra points will cost you when you’re paying it back. For instance, if you borrow $500,000 and your loan comes with two or three points, each point adds another $5,000 to your original loan. You also need to check your hard money home loan lender’s reputation by seeking reviews from others who have used them. Find out if they have a positive history in dealing with those that borrow money from them. If possible, try and meet with your hard money home loan lender because hard money investors are worth having a positive relationship with.

Your Next Step

Your next step is figuring out what type of home loan you want to pursue, and if it’s a hard money home loan, research and find the best one to fit your needs. While your approval time is a lot less, you also have less time to pay it back. Sometimes you have to pay a hard money loan lender back in twelve months. Although sometimes you can stretch it out to two-five years under special circumstances.

If everything above represents what you want to do and then you can find no better resource than a hard money home loan lender. There are so many ways you can benefit from a relationship with the lender. Don’t wait, move forward and find a hard money loan lender that helps you get the future you deserve.

Resources:

https://sfs.columbia.edu/financial-aid/private-loans

https://www.consumer.ftc.gov/articles/0187-when-paying-mortgage-struggle

https://www.thebalance.com/hard-money-basics-315413

 

 

How Successful Builders Aren’t Stopped By Lending Limitations

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The Great Recession signified death for many businesses, and particularly the construction industry. Very few survived it, in fact. Those that did survive have a solid footing on the market today, but they are few and far between. The vast majority of construction companies continue to struggle. One of the reasons for this is that, although there is more credit available and the underwriting process is easier construction financing, or acquisition, development, and construction (AD&C) loans, are still hard to get.

The Basel III standards impose increased capital requirements on banks for acquisition, development and construction (ADC) loans for commercial real estate projects. These commercial construction loans are now designated as “high-volatility commercial real estate” (HVCRE) loans, and banks are required to assign these a “risk weight” of 150 percent, compared to other business loans, for purposes of calculating the capital they must hold against these riskier loans.

What this means in simple terms, is that new developers don’t even have to bother asking for a loan through a community bank. Indeed, this was a key area of concern for 2018, something picked up on by the Federal Deposit Insurance Corporation (FDIC) and the NAHB, which has observed a dramatic slow down in construction lending. This doesn’t mean that lending is no longer happening, but rather that it continues to be very difficult, despite being in a growth cycle.

For builders, these are confusing times. On the one hand, demand for new properties is up, but creating supply is impossible through traditional means. This also highlights the importance of finding an alternative.

Why Community Banks Won’t Lend

Traditionally, community banks were fantastic sources for AD&C loans, because of the fact that they focused on the local market. Unfortunately, ever since the Great Recession, the risk has simply been too big for them. In fact, statistics show that small banks were hit the hardest.

The recession was especially unkind to small community banks. About 85 percent of banks that failed 2008-2011 were considered small, with assets below $1 billion. Smaller banks tend to have a larger portfolio of small business loans, therefore increased risk. But smaller banks also tend to get involved in local community development and philanthropy.

Bankers haven’t forgotten the Great Recession, and neither have developers. People still prefer to be cautious, despite the fact that, for nine years, a growth cycle has been experienced. The economy may be doing well but people feel they are on tenterhooks and expect another bubble to burst. Construction, in particular, is always very risky, with a lot of failures and defaults regularly noted because resources can no longer be found. Banks do not yet have the security themselves that enable them to mitigate this risk.

Increased Scrutiny

There is a strong sense of risk aversion and one way in which that is mitigated is through increased scrutiny. Different forms of lending have been observed, including an increase in loans for single families. At present, community banks aim to have no more than 35% exposure to each of the different asset classes and this has proven to be a good strategy.

Low interest rates coupled with an improving U.S. economy have stimulated CRE markets nationwide, resulting in strong price increases and high valuations. At the same time, the commercial mortgage-backed securities (CMBS) market has not been a huge source of competition for banks. These factors, combined with historically benign asset quality performance, have promoted relatively strong growth for CRE lending, most prominently among regional and community banks.

It is also believed that, with the appointment of Joseph Otting to the Office of the Comptroller of the Currency, which happened in November 2017, regulatory oversight is going to get better. Indeed, banking partners agree that there will be a loosening of regulations, which could spell benefits at local levels. While this is a fantastic development, it doesn’t resolve the fact that, in the here and now, banks aren’t lending and commercial real estate investors and developers still need funds.

The Solution

In response to the tight regulations of banks, and particularly of community banks, investors and developers are turning to private lenders instead. Hard money loans are reasonably easy to get, particularly for projects that have a strong chance of success. They are high risk, but this risk is mitigated by high-interest rates and short loan terms. As such, hard money lenders can ensure that they get their money back if nothing else.

Money is business. Banks may provide a financial service but, at the end of the day, their goal is to make more money. They do so cautiously, in part because they build lengthy lending relationships with their clients. Private lenders, meanwhile, also simply want to make more money. But they do so boldly, working with borrowers for short periods of time. They are two opposite sides of the spectrum, in other words.

Construction loans, in particular, are also highly complex. This is another thing that banks are resistant to. They would prefer something that is easy to understand, easy to underwrite, and easy to work on. Hard money lenders, by contrast, are visionaries. They don’t mind working over complex figures and other difficulties, because they can see what the potential in that project is, and what the end result is likely to be. They are realistic, in as such that they won’t lend on a project that they believe has no chance of success, but they also don’t mind taking risks, sometimes very significant ones.

Today, therefore, there are two classes of successful construction companies. The first class is the one that was around before the Great Recession and that continued to operate through it, never giving up and never having to close its doors. Those are the ones who have the biggest chance of going to a community bank and getting approved for a loan. The vast majority of construction companies, however, are new ones or have re-opened after the Great Recession was over. For them, the banks aren’t open yet, but hard money lenders are.

What is a Hard Money Investor

What is a Hard Money Investor?

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So, you and your spouse are ready to buy a new home. Around 32% of homeowners with less than stellar credit got turned down for a housing loan in 2017 alone, though. So, you’ve come up with another idea. You want to rent out another property that you own and put that money toward the house of your dreams. The problem is that the house needs a lot of work. Work that you can’t afford, either. You may want to enlist the help of a hard money investor.

By going through one of these investors, you’ll be able to get the loan that you need in a few days so you can start your renovation project. There are many pros and cons to these types of loans.

To help you weigh these pros and cons and decide if going through an investor would be right for you, here is a quick guide on everything that you need to know about them.

So What is a Hard Money Loan?

Let’s start from the beginning by telling you a little more about the loan. A hard money loan is a short term loan given to you to pay for real estate investments. The money that you’re given can vary depending on what you’re putting up for collateral, your credit history, and the value of the house you’re doing renovations on.

This money is given to you by a private investor rather than a bank. The interest is usually a little higher on hard money loans, and you’ve got a shorter time to pay it off. Even so, it can be worth it for you to use them as a means to fund your real estate projects.

Hard Money Loan Vs. Other Loans

Why not go through a soft loan rather than a hard one? If you wanted to go the soft money route you would have to jump a lot more hoops. First, you have to have a good credit history. This will be reported to your creditor as an inquiry. “This Inquiry will have a small but negative impact on your credit score.”

On top of having a good credit score, you also have to give up proof of income. If all this checks out then the bank might approve you for the loan.

Getting a hard money loan is a little bit easier than that. When you try to get one of these loans, you’ll be giving up property as collateral to the hard money investor. It’s because you’re giving up something physical as collateral that the investors are less picky about your financial status and credit history.

Why Go Through a Hard Money Investor?

The interest rate on hard money loans is higher than soft ones, and you don’t have as long to pay it off. So, why would you seek an investor? The answer is that the process is faster, there is more flexibility with it, and the approval rates are higher.

Speed

Soft money lenders go through your application with a fine-tooth comb. They take everything into account from your credit history to your bank statements. As you can imagine, this makes the process go much slower.

Again, in the case of hard money loans, you’re giving up something as collateral. The hard money investor doesn’t want to have to take the property that you give up, but they can if they have to. This means that they aren’t as thorough with looking over your application. You’ll know much faster if you got the loan or not.

Flexibility

Large banks and corporations have strict repayment schedules that you have to abide by. Hard money investors are a little more flexible than that. If you build a good relationship with the investor, they may be willing to talk things out. You’ll be able to get a repayment schedule that works for you.

Approval

The most important thing to a hard money investor is collateral. If they have to take your property back they can sell it fast, and they know it. They may look through your finances and credit history, but these things will mainly affect how much money you’ll get. It’s more likely that you’ll be approved for the loan than not.

Sources:

Maldonado, Camilo. “32% Of Applicants With Less Than Perfect Credit Were Denied Mortgages In 2017.” Forbes, Forbes Magazine, 27 July 2018, https://www.forbes.com/sites/camilomaldonado/2018/07/27/32-percent-of-applicants-without-perfect-credit-denied-in-2017/#26ea218a4b18

“What Exactly Happens When a Mortgage Lender Checks My Credit?” Consumer Financial Protection Bureau, https://www.consumerfinance.gov/ask-cfpb/what-exactly-happens-when-a-mortgage-lender-checks-my-credit-en-2005/.

 

 

Could Banks Start Offering Safer Payday Loans?

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Hard money lending is highly controversial. While it certainly has its place in the world of real estate investing, one form of it has received a bad reputation, which is that of payday loans. These loans attract everyday individuals stuck in a financial conundrum, but then trap them in an increasingly deep hole of debt. Now, it seems that a new system will allow banks to offer short term loans, and to do so in a way that is much safer for the average American. But is that even possible?

High-Risk Hard Money Lending

What attracts people to payday loans is that they are for low amounts and very short term. While they have interest rates of 300% or above, the fact that they are short term means that people effectively only pay around $60 in interest. People know they are dangerous, yet continue to apply for them.

People use payday loans to avoid borrowing from family and friends, and to avoid cutting back further on expenses. But they often end up doing those things anyway to pay back the loan.

The problem with payday loans is that most people simply do not have the ability to repay them, which means they roll them over instead, paying only the fees. A recent report by the Pew Charitable Trusts showed that, on a $375 loan, the average paid in fees is $520. Suggestions have been made to resolve this, including:

  • Allowing payday loans to be turned into installment loans instead
  • Limiting how much the borrowers have to repay to 5% of their monthly earnings

According to the Pew Charitable Trusts, doing so could save consumers around $10 billion per year.

A Better Solution

To help people avoid debt traps, the Consumer Financial Protection Bureau has put new underwriting requirements in place.

The rule generally requires that, before making such a loan, a lender must reasonably determine that the consumer has the ability to repay the loan. The Bureau has exempted certain short-term loans from the ability-to-repay determination prescribed in the rule if they are made with certain consumer protections.

What is perhaps more interesting is that, on the very same day, the Office of Comptroller of the Currency rescinded their rulings that made it all but impossible for banks to offer small-dollar loans.

The final rule regarding short-term, small-dollar loans submitted to the Federal Register by the Consumer Financial Protection Bureau necessitates revisiting the OCC guidance.

What this effectively means is that people can now once again turn to their banks in order to apply for small loans, and they are likely to get them. However, this doesn’t resolve the issue at hand, which is that people simply do not have enough savings to meet financial emergencies. Indeed, research has shown that 44% of people in this country would not be able to raise $400 in case of an emergency.

Not just that, but there will always be a place for hard money lenders, because of the role they play in real estate purchases. Because these lenders are private lenders, it is at their discretion to determine who they loan to, and under what circumstances. And considering that, despite the October regulations, the demand for residential hard money lenders continues to rise, and it seems that there will always be a place for them. Perhaps, it is time for a reclassification that no longer sees a payday lender as a hard money lender. In so doing, the industry could be more fairly regulated, while at the same time protecting the average American from the predatory practices of the payday lender.

Hard Money Lenders – Who are They and What Do They Offer?

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Housing hunting is fun, but also stressful. Many people see buying a home as a significant milestone of adulthood. But what happens if your credit isn’t right? While you can attempt to get a traditional bank loan with a co-signer, there’s also another option. Hard money lenders provide the funds for purchasing a property to people with damaged credit. A hard money loan offers similar pros and cons to a traditional loan, but it might be easier to get.

Who Are Hard Money Lenders?

No, they aren’t creepy characters in a trench coat making backdoor deals. Hard money lenders are privately funded lenders. They are not affiliated with banks, credit unions, or mortgage lenders. People with a history of poor credit, bankruptcies, or foreclosures, might consider a hard money loan. The hard money loan amount is based on the property value. If the borrower is unable to repay the loan and defaults, the hard money lender takes possession of the house and resells it.

What Terms Are Included in a Hard Money Loan?

Years ago, a hard money loan lasted typically for a short term of one to five years, but this is no longer the case. Now hard money loans come with longer terms, which makes them more attractive to home buyers. However, a lender generally wants a return on their investment. Therefore, a borrower needs to have some of the money necessary to purchase the property as a lender won’t lend out more than 70 percent of the property’s current value. This practice ensures the lender can sell the property if you default and collect their money plus extra.

The lender’s interest rates could be higher than traditional, Federal Housing Administration (FHA), or Veteran Affairs (VA) housing loans. Hard money lenders might charge 10-15 percent interest rates.  Points ranging from two to five are added to the loan amount to generate an origination fee. Two points are two percent of a loan amount of $150,000 equaling a $3,000 origination fee.

According to Forbes, 32 percent of mortgage loan applicants with a credit score of less than 700 were denied. Sure 68 percent of applicants were approved, but what about the others? “Just because you have a low credit score doesn’t mean you can’t purchase a home. There are a lot of options out there for consumers…,” says Randy Hopper, senior vice president of mortgage lending for Navy Federal Credit Union. Property buyers looking to invest in a flip or a home should consider applying for a hard money loan because it could be the answer to their dilemma.

The Benefits of Using a Hard Money Loan

The home buying process might be lengthy, depending on how long it takes to find a property. But the way you purchase the house could drag if you attempt to apply for a traditional home loan. Factors like the amount you need, credit score, and negative items on your credit history might reduce the chances of approval. Therefore considering a hard money loan might be a valuable option because of the benefits associated with them.

Faster Application Process

Since a hard money lender isn’t focusing on your credit score, the application process goes by quicker. A hard money loan is ideal for someone who doesn’t want to wait for the bank to run a credit check, look into employment history, or to review bank statements. If a borrower has cash available, approval can usually occur within a week as opposed to 30 – 45 days for a regular mortgage loan.

Flexibility

Hard money loans come with a flexibility that other investments don’t offer. Because hard money loans don’t use regular underwriting and examine the numbers for each deal, the length of the loan and the interest rates can get negotiated.

Short Term Deals

Hard money loans are best for short term borrowers. The higher interest rates don’t make them suitable for a person who wants to live in the property long term. A person who intends to buy and flip a home could make out well with a hard money loan, especially if the purchase, repairs, and selling happen fast.

If you’re looking for an easier and faster way to finance your property buying needs, then a hard money loan might be right for you. To learn more about hard money loans, please contact a hard money lender to discuss your interest.

Resources

https://www.bankrate.com/finance/credit/low-credit-score-borrowers-get-mortgage.aspx

https://www.forbes.com/sites/camilomaldonado/2018/07/27/32-percent-of-applicants-without-perfect-credit-denied-in-2017/#fc1cc264b189

https://www.law.cornell.edu/wex/mortgage

https://www.refiguide.org/hard-money-loan-for-people-with-bad-credit/

https://retipster.com/hard-money-101-everything-need-know-getting-started-hard-money-loans/

https://www.va.gov/housing-assistance/home-loans/loan-types/

 

Bridge Lending And Hard Money Lending Made Easier By SECC

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South End Capital Corporation (SECC) has long been a hard money lender to watch. They seem to regularly change the rules and offerings to make it easier for real estate investors and other buyers and developers to get the money that they need. They have announced some new changes on how they conduct their lending operations, particularly in terms of bridge lending. The biggest change is that they want to move away from asking borrowers to pay a huge fee upfront, and they want to cancel the dreaded due diligence deposits. Unsurprisingly, other lenders in the industry are wondering how to deal with these changes, as they want to keep up and remain competitive. Noah Graysen, Managing Director at SECC, has explained the rationale behind this move.

Traditionally, bridge lenders or hard-money real estate lenders demand large due diligence deposits upwards of $30,000. They also mandate the order of their own appraisal reports. But SECC’s core commercial bridge program [from $250K to $5M] does not require upfront due diligence fees.

Lower Fees Charged by SECC

Naturally, even SECC will have to charge some fees, but they are surprisingly low. All they will ask for is a site inspection fee or other forms of third-party appraisal, which will cost between $1,500 and $3,000. This is significantly below the costs charged by other lenders in California and only has to be paid once a letter of intent is available. Another important element is that the real estate loan application is now quicker and easier than ever before.

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Appraisals will still be needed, which is standard with bridge loans and other hard money loans. In this case, SECC has changed the standards again. So long as a report exists and it was issued within no more than nine months, they will accept it. This means that it is easier than before to supply the appraisal report, instead of having to apply for new ones all the time. Should a new appraisal be required, SECC wants to make sure that the cost of due diligence remains affordable for their clients. This means that it will never cost more than $2,500, as they have agreed to cap this price.

It is very common that borrowers struggle to get the costs required for applications. Many hard money lenders have exorbitant costs in place, running into the thousands of dollars, for appraisals, reports, and other out of pocket fees. If borrowers inquire with multiple lenders, they often have to pay these costs multiple times, even though the same report will be produced. In contrast, SECC feels that borrowing should be affordable for their clients, and they believe that the loan process itself should be sensible, even if the borrower is traditional in nature. Since its establishment, the South End Capital Corporation has set itself apart as a lender with a difference, and this is one of their clearest benefits.

South End Capital Corporation ‘SECC’, founded in 2009, is a nationwide, non-conforming lender (CA Finance Lenders License # 603 L334) providing commercial and investment residential real estate loans, bridge loans, fix and flip loans, subprime SBA loans, easy documentation business term loans, “No Credit Check” business lines of credit and merchant cash advance (MCA) consolidation loans. SECC offers excellent service, prompt responses and custom tailored financing.

SECC Named One of the Best Companies

In many different financial reviews, both national and state-wide specific to California, SECC has been named as one of the best companies around. Indeed, both TopTenReviews and Fit Small Business named them “top ten best” and “the best”, respectively. Their expertise in investment and commercial real estate loans, including subprime SBA loans, bridge loans, and many other types of loans, is what has set them apart in the industry. Indeed, they offer significant benefits that other lenders simply cannot seem to be able to meet.

SECC offers easy online applications, excellent service, prompt responses, generous compensation to approved partners, and custom-tailored loans.

Since the company was founded in 2009, they have always prided themselves on the fact that they work with non-traditional borrowers. They understand that the vast majority of people simply cannot meet the application criteria set by banks, or that the offerings of banks aren’t fit for purpose even if they do meet the necessary criteria. What also makes them unique is that they truly look at each case on an individual basis.

Through bridge loans, South End Capital offers a different way for you to get financing. This lender offers nationwide coverage as long as you secure the loan with a commercial or residential property. As long as you have everything filled out correctly on the loan application, you could be approved and have the loan closed in two to four weeks.

SECC Offers Loans to Those Turned Down by Banks

Through this work, they have been able to offer loans to people turned down not just by banks, but also by other types of investors, the ability to purchase real estate projects through the country. Although they are based in California, they offer help on properties in any other area of the country as well. In so doing, they have been able to corner a significant national market share, something that is worrisome for many other hard money lenders, who see in them a significant competition.

SECC was founded just as the Great Recession ended in 2009. Since then, they have been able to grow significantly and have now developed a national positive reputation. There are very few companies who can say the same, with most of them either having gone under during the Great Recession or having waited several years before forming. According to some financial experts, SECC has played an important role in rebuilding the country’s real estate market. Since borrowing the needed funds has become increasingly difficult since 2008, there has been a real need for hard money and other non-traditional lenders like SECC.

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