Hard Money Lending – A Brief History

Hard Money Lending – the Oldest form of Lending

Hard money lending is a form of lending which crosses the borders of the usual type of lending. People turn to this type of lending when the traditional doors are shut or are not quick enough. Although hard money lending goes on all over the world in some form or the other, this type of lending is most commonly seen in the United States and Canada.

The Genesis

It all started with the credit industry making their system fully automated, which made way for credit scores. The scores were used for evaluating the eligibility for all types of loans. When the credit scores did not allow for traditional loans, then came the system of hard money loans. These loans were mainly used in the commercial real estate sector where the borrower turned to hard money as the final resort to get capital against the value of the property.

Explanation of Hard Loans

This new type of loan was innovative and a life saver for many. It saved many businesses and home owners against bankruptcy and foreclosures. When all else did not work, this was where many turned to as the lenders do not look at the borrower’s ability to pay back the amount. Their attention will be on the property, which is kept as collateral. When the borrower failed to repay the amount within the stipulated period, then the lender was free to get back the loan money by selling off the property.

The Real Estate Predicament

All went well till the crash of the real estate market in the 1980s and 1990s. The collateral property, which was the focal point of the lending business, did not fetch the expected rate, which caused a negative investment for the lenders. However, hard money lending did not go out of business and it still remains one of the favorite means of getting quick cash. The only difference is that lenders lowered the loan-to-value rates to safe guard the business.

The Other Side of the Story

This became a preferred means of business to a new kind of money-lenders, due to its high interest rates. There came into being many lending companies, and even individuals, who recognized the potential of such lending. Brokers were used to getting clients in the same way as traditional lenders. Even though the commission rates are high, plus the added burden of high interest rates, the market for hard money loans is becoming bigger by the moment. The business branched into financing the following:-

- New non-traditional businesses which banks do not finance.

- All businesses where money was needed in a jiffy.

- To all individuals who had bad credit history and scores.

Conclusion

No situation is too tight with hard money loans around the corner. The fast cash that can be gotten without the usual red tape measures and the intensive documentation is pulling many out of financial mires. Even the monthly installments are easy and low, but the bulk of the loan must be paid before the loan period ends.

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