First Option Lending: The Truth About Hard Money

Running an internet search on hard money reveals a lot of people writing on a topic they know very little about. For example, you will frequently read comments like, “Hard money is a last resort for borrowers who can’t get money from a bank.” Not only is that not true, but hard money is also the first option for a large number of borrowers who use it almost exclusively to fund their projects.

According to Actium Partners, a hard money lending firm based in Salt Lake City, UT, hard money has its repeat customers. Utah property investors frequently turn to Actium and similar private lenders to fund new properties. They do not even bother going to banks or mortgage lenders.

Hard Money Myths Abound

Hard money being a last resort form of lending is a common myth. Unfortunately, the myths surrounding hard money abound. Those myths include the following:

  • Hard money is mainly for people with poor credit
  • Hard money lenders are predatory
  • Hard money loans are always more expensive.

There is a lot about hard money people do not understand simply because they have no valid reason to learn about it. Unfortunately, this translates into a lot of misinformation. If more people took the time to truly understand how hard money works, they would understand it is not a last resort form of lending. They would realize that for many borrowers, it is the first and best option.

Access to Fast Cash

Again, property investors are typical customers for hard money lenders. One of the reasons investors turn to hard money is speed. When you are buying investment property, you generally don’t have months to wait on your bank to make a decision and fund your purchase. In most cases, you only have weeks. Some deals are so time-sensitive that investors need to get something in place in a matter of hours.

If you were looking to purchase a piece of property that five other investors were also interested in, would you be willing to wait three months for your bank to come up with the money? Not if you could go to a lender like Actium Partners and have the loan funded in 48 hours.

Hard money is a first option for property investors. More than one investor relies exclusively on hard money even though traditional financing is available. Traditional financing just isn’t as attractive.

Not as Expensive as People Think

One of the biggest criticisms of hard money is that interest rates are so high. As the thinking goes, hard money loans are more expensive because rates are so much higher than conventional loans. Rates may be higher, but that does not mean hard money is more expensive to borrow.

Imagine you are a property investor looking to finance a new acquisition with a $500,000 loan. Given that hard money loans are short-term loans, you are offered a deal of 10% at nine months. Down the street, the local bank is offering you 5% at 60 months. Run the numbers yourself. You will discover that you will pay just over $16,000 more by going with a conventional loan at half the rate. Why? Because the term is so long.

Hard money loans are not always more expensive. Quite often, they are cheaper due to their short-term nature. It is yet another reason that hard money isn’t a last resort form of lending. Hard money brings so many positives to the table that a core group of borrowers look at it at their first and best option. To them, banks are the last resort – and if everything else falls through.

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Wayne Martin