by Tim Driver
Hard money lenders are an option that many people are not aware of when the need for money arises in small business or personal ventures. Hard money lenders are those lenders who provide short term loans based on real estate or commercial property as collateral. The lenders themselves can be businesses or private investors
Private hard money lenders are different from most commercial loan institutions, because their guidelines are often easier to meet. Instead of going on proof of income as a main indicator, often times it is merely the value of real estate being used as collateral that determines the amount of funding available. Private hard money investors will usually charge a higher rate of interest on such loans, because the potential for default is higher, but they can be a great source of funding when the borrower's credit is poor, or they have been turned down by more traditional commercial lending institutions. Las Vegas hard money lenders for instance, have access to loans that more traditional institutions cannot offer, with higher loan to value ratios and no pre-payment penalties.
Two of the most important things to watch out for when looking at hard money loans are the rate of interest and whether or not there is a penalty for paying the loan off early. Depending on the length of the loan, interest can end up costing one way more than they borrowed or bargained for. Private investors are not shy about the fact that they are in the transaction in order to make money. Commercial hard money lenders tend to be a little closer to the traditional lending institutions, but still have access to loans not otherwise offered, and should still be watched carefully with respect to interest rates and fees.
For those looking for seed money to start a small business, a hard money lender may be just the answer when a bank has turned down the business plan for funding. Given the proper real estate as collateral, the business itself matters less because it is the real estate that is backing the amount financed, and not the potential success or failure of the proprietor.
For those whose credit has suffered, or are looking to avoid foreclosure, or even those who can't seem to get traditional funding, a look at the hard money market may be just the ticket to financial stability.