Hard money lending is a type of financing in which a borrower receives a short-term loan secured by real property. This type of lending is typically used by investors to finance the purchase and renovation of commercial real estate properties.
One of the main benefits of hard money lending is that it is often easier to qualify for than traditional bank financing. Because the loan is secured by the value of the property, lenders may be more flexible with their lending criteria. This makes it a good option for borrowers who may not be able to qualify for a traditional loan due to bad credit or a lack of collateral.
Another benefit of hard money lending is that it is a fast and efficient way to access capital. Unlike traditional bank loans, which can take weeks or even months to process, hard money loans can be approved and funded in a matter of days. This is especially beneficial for investors who need to act quickly to secure a property or take advantage of a time-sensitive investment opportunity.
Despite these advantages, there are also some drawbacks to hard money lending. For one, the interest rates on these loans are typically higher than those on traditional loans. This is because hard money lenders are taking on more risk and need to charge a higher rate to compensate for this. Borrowers should carefully consider the total cost of the loan, including both the interest rate and any origination fees, before committing to a hard money loan.
Most hard money loans have a repayment period of one to three years, after which the borrower must either refinance the loan or pay it off in full.
Overall, hard money lending can be a useful tool for investors in the commercial real estate space. It offers a quick and efficient way to access capital and can be a good option for borrowers who may not qualify for traditional financing. However, borrowers should be aware of the potential drawbacks, including higher interest rates and shorter repayment terms, and carefully consider the total cost of the loan before committing to a hard money loan.
