What Are Hard Money Loans

What Are Hard Money Loans: A Beginner’s Guide

Have you heard of hard money loans for businesses but are not sure exactly how they work or if you are eligible?

Often thought of as a quick and easy way to raise funds for a new business venture, just because a hard money loan offers fast financing, doesn’t mean that it is the right choice for everyone.

Read on to discover everything there is to know about hard money loans including how they work and how to get approved for one.

What is a hard money loan?

A hard money loan is a short-term loan that typically requires some form of collateral, such as a property to secure. Hard money loans are sometimes called bridge loans and can be used to finance one house while preparing to sell another.

Unlike traditional loans, hard money loans tend to come from individual investors or private companies. If you are new to this type of loan, it can be a good idea to look for hard money lenders for beginners.

What can hard money loans be used for?

There are lots of reasons why people seek out hard money loans, such as:

  • To flip houses

Real estate investors who want to purchase fixer-upper homes to flip for profit may seek out a hard money loan to help them secure their next property.

  • To purchase an investment property

People who want to purchase an investment property but do not qualify for a traditional loan are more likely to be approved for a hard money loan.

  • To purchase a commercial property

Business owners who want to purchase a commercial property or invest in commercial real estate but cannot borrow enough from a traditional lender may turn to a hard money loan.

How to get a hard money loan

In most cases, a lender will approve a hard money loan based on the value of the property being purchased. However, they may also look at the borrower’s credit rating or finances of the borrower but these checks are much less vigorous than those carried out by traditional lenders.

It is worth noting that, although easier to secure, hard money loans tend to have shorter repayment periods, so you need to be sure you can repay what you borrowed within the allocated timeframe.

How to choose a hard money lender

As mentioned briefly, hard money lenders tend to be private investors or companies who specifically deal with this type of lending. They do not have to follow the same regulations as traditional lenders which means they are a popular choice for borrowers who are struggling to be approved for a loan elsewhere.

When choosing a hard money lender, make sure you take the time to find a legitimate company with a track record of supporting real estate investors. It can also be a good idea to read online reviews and customer testimonials, as these will give you a better idea of the type of people you are dealing with and the service you can expect to receive. You may also want to ask family, friends, and colleagues for recommendations.