Just about anyone who has had experience with hard money lending knows that speed is the biggest advantage it offers. Borrowers in need of fast cash can get from application to closing in a couple of days, at most. A simpler underwriting process and easier approval are two additional advantages of borrowing hard money. But are there more?
Yes, indeed. According to Salt Lake City’s Actium Partners, hard money lenders have a lot to offer. There are definite advantages to hard money that go beyond speed, easy approval, and streamlined underwriting. Below are five of them.
1. Direct Lending
At the top of the list is direct lending. Hard money lenders are private lenders acting either as individuals or as groups whose funds are managed by a hard money firm. Regardless of structural organization, hard money lenders lend directly to borrowers. They are not brokers.
A broker arranges loans on behalf of third-party lenders. Once a loan has been approved, the broker steps out and the lender assumes its relationship with the borrower. You do not have this sort of setup with hard money. Borrowers deal directly with lenders from start to finish.
Also of note is the fact that it is normal for hard money lenders to keep all their loans in-house. In other words, they don’t write loans and then sell those loans as investments to institutional lenders. Keeping loans in-house is another benefit of direct lending.
2. Greater Lender Flexibility
As private lenders, hard money lenders are not subject to the same federal regulations traditional lenders must follow. This means they have a lot more flexibility. Hard money lenders have much more latitude to customize loans according to each client.
Lenders can be more flexible in everything from LTVs to interest rates to loan terms. Whatever kind of deal lender and borrower can agree to is acceptable – within a few parameters.
3. Knowledge and Experience
Next up is knowledge and experience. Actium says that most hard money lenders specialize in just one or two areas. Actium’s specialty is commercial real estate investing. They offer a level of knowledge and experience that borrowers just cannot get from traditional lenders. That knowledge and experience proves invaluable to investors time and again.
Although Actium does not write loans for fix-and-flip properties, other lenders specialize in that niche. The knowledge and experience they bring to the table can guide fix-and-flip investors through every stage of financing, acquisition, and rehab.
4. A Personalized Experience
Though there are exceptions to the rule, most hard money lenders offer personalized service. Borrowers deal with a firm’s owner or a dedicated account representative from start to finish. They don’t get shuffled from person to person as a loan is accepted, underwritten, and funded. It is one person all the way through.
Anyone who has ever obtained a residential mortgage knows how important this is. Nothing is more frustrating than being shuffled from one representative to the next – especially when it is apparent that none of the representatives know what the others are doing.
5. Early Repayment Opportunities
Finally, most hard money lenders allow early repayment with no penalty. That is a big deal when you consider that hard money loans can be quite sizable. Avoiding a repayment penalty is an incentive to get things squared away as quickly as possible.
Speed, ease of approval, and simpler underwriting are three of the biggest advantages of borrowing hard money. But as this post demonstrates, there are other advantages that don’t get talked about as often. It is obvious that hard money has a lot to offer over its traditional counterparts.