What is a Hard Money Lender?

This article was submitted to be for publication and it answers the question of what a hard money lender is. All links in it are links to exclusive resources for our Real Estate Investor Bronze Members:

You may not have ever heard the phrase “hard money lender”, but you probably know what a Hard Money Lender is, even if you don’t realize it.

A Hard Money Lender typically offers consumers and businesses short term loans, using a piece of real estate as collateral for the loan. This is typically referred to as a “bridge loan”, a term you may be more familiar with.

Another thing that defines a hard money lender is the nature of their business. A hard money lender will require less documentation than a traditional lending institution. Since they require less documentation, the loan terms are harsher than the loans of a bank, with higher interest rates and less forgiving repayment terms. Rather than investigating the credit worthiness of the borrower, a hard money lender is more concerned with whether the loan is secured against an asset which has a value equal to or greater than the loan. What does this mean? Typically, a hard money lender’s borrowers will be at a higher rate than your average bank borrower.

Another type of hard money lender is known as the commercial hard money lender. A commercial hard money lender is less concerned with loaning money to an individual, and more concerned with offering money to a business interest. This might be a corporation, or it might be a businessperson who is trying to get financing for a business venture. Like a non-commercial hard money lender, the loan typically must be secured against an asset. However, in the case of the commercial hard money lender, this asset is often a piece of real estate investment property, or a commercial piece of property.

Hard money lenders operate in every state in which usury rules do not preclude their operation. Most states, with the exception of Tennessee and New Jersey, host many hard money lenders, and there are many companies that operate on a national scale.

There is a time and place for using hard money lenders. For more information read about the advantages of using hard money loans which covers strategies when it may be appropriate to use hard money.

Until my next post,

James

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