What is a Hard Money Loan?

Where banks and traditional money lenders do not dare to tread, hard money lenders step in. These lenders take a great risk in lending money to people who hardly have any credit worthiness and who are in desperate situations. There are several commercial companies and private lenders who see a potential investment in lending money for short term loans, which are taken to stall foreclosures and bankruptcies. The interest rates that these loans call for are significantly higher than traditional loan rates.

Advantages of a Hard Money Loan

- Hard money loans are given where the value of a collateral property is taken into account rather than the credit worthiness of the client. The lender does not see whether the borrower can repay the loan. This makes it the perfect type of loan and perhaps, the only type of loan that you might be eligible for in case your credit report is in a bad shape.

- These loans are relatively easy to get as there is no hard documentation that is needed and no long red tape process that is usually characterizes traditional loans. Hence you can get your loan within a short time.

- There are literally no questions asked, so you do not have to conform to the traditional loan requirements. Commercial hard money lenders welcome any type of loans as long as you have healthy collateral and are willing to pay them the huge interest rates. Banks, on the other hand, are rigid and even when your credit score is good, they might still turn down your loan application.

Situations which justify hard money loans

- When your business is at a financial risk and you need money immediately.

- When you need financing for innovative projects.

- To get out of bankruptcy and avoid foreclosure.

- To pay back other loans.

- When your credit is in a sorry state and you have no other option.

Insides of a hard money loan

When you are in need of a hard money loan, you can directly approach the lender or go through a loan broker. The broker charges the same as any other broker and the commission can be quite high depending on the amount that is needed. You can pay back the loan in low monthly installments for a set period of time and then pay back the rest of the amount at the end of it. In case the borrower is unable to pay back the loan, there are two options to choose. The borrower can either extend the loan period or else allow the lender to sell the collateral property.


On a cautious note, most commercial financiers will not recommend hard money loans based on the high interest rates and the short term period that it usually stipulates. However, as the advantages far outweigh the disadvantages, many go for it. Businessmen and the individual alike find that this is far better than traditional sources. Hard loan is a gamble and it usually pays off.

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