If I had to come up with a brief description of hard money and bridge loans to someone who didn’t know much about private lending, I would offer something like this: hard money and bridge loans represent cash for things banks won’t touch. That is really what hard money amounts to.
Banks have their own lending criteria. So do credit unions. Both represent large numbers of account holders. The amount each account holder contributes is comparatively small. Nonetheless, the bank and credit union must adhere to strict regulations in order to protect the interests of each and every customer.
That being the case, there are plenty of lending opportunities they will not touch. If the risk on a particular loan is even marginally high, the answer will be an automatic ‘no’. Traditional lenders are naturally averse to risk, which is why they tend to turn away certain types of loan requests.
Hard Money Is Different
Hard money lending is different because it is funded by private resources. According to Salt Lake City’s Actium Partners, you might have a group of individual investors who pool their financial resources to make hard money and bridge loans available to borrowers. But Actium says you could just as easily have a single individual with enough money to make loans himself.
The one thing all hard money lenders have in common is their status as private lenders. And as private lenders, they are subject to an entirely different set of regulations. Private lenders don’t do things the same way banks and credit unions do them. That makes a difference.
Some Lenders Will Look at Anything
Some hard money lenders will look at virtually anything. They are open to any financial need as long as the risk is manageable and the opportunity for profit is there. Other lenders are more specific. For example, Actium Partners focuses almost exclusively on commercial real estate investments. They do not get into land development or construction loans.
Here is a partial list of some of the needs hard money lenders are willing to meet:
- Fix and flip projects.
- Commercial real estate investments.
- Commercial real estate rehabs.
- Land development projects.
- New construction projects.
- Business expansion.
- Business debt reorganization.
- Mergers and acquisitions.
A firm like Actium Partners might choose to specialize in one or two areas in order to become experts therein. They prefer not to have too many irons in the fire. And quite frankly, it is not necessary to expand beyond one or two specialties. There is enough business to go around.
Cash When Banks Say No
If you go back and look at all the needs mentioned in the previous list, you will notice that most of them are things that banks will not go near. Your typical bank would find it hard to justify getting involved in fix and flip projects. Likewise, banks tend to scoff at commercial rehab and new construction projects.
Even when a bank is willing to take the risk on a questionable loan, the process for approval and underwriting is extremely slow. Therein lies another advantage for the hard money lender. What could take a bank month to complete is just a few days’ work for your typical hard money lender.
When an entrepreneur, investor, or business needs cash and every bank says no, all is not lost. There is probably a hard money lender willing to help. That’s what hard money lenders do. They provide quick access to cash for projects banks and credit unions won’t touch. What they do constitutes a valuable service to all sorts of borrowers.
