A hard money loan means funding a potentially viable project for which financing may not be easily available from conventional sources. The risks involved are greater, and so are the interest rates. Hard money loans could be for bridge financing, debt consolidation, acquiring property, commercial deals and many other purposes. Lending decisions and loan disbursement are quick. Normally, collateral is required. The general practice is to advance 40% to 70% of the value of the security offered. In some cases, loans beyond this limit would be considered. Only applications for amounts above a specified minimum amount are entertained. Certain lenders refuse to advance money on the collateral of properties on which the borrower or his close relatives stay. Lenders often consider bad credit and high-risk applicants who may find it difficult to borrow elsewhere. The major players in this field are lenders and brokers. The borrower can approach either group. The function of the brokers is to put the potential customer in touch with interested lenders, and offer advice on the best bargains. Quotes from three or four probable lenders would be presented to the borrower. Naturally, there is likely to be a fee for the services. If the lender is approached directly, there would be some savings, but most borrowers may not know whom to approach. Be careful of lenders or brokers who ask for a payment up front. They may be genuine operators, but there are others who would process a loan application without an advance. At the moment, the going interest rates seem to be around 14% to 18% per annum, payable monthly in most cases. The annual interest amount is divided by twelve to arrive at the monthly installment. There is an element of hidden cost in this. Hard money lending caters to a real need. |
