The Truth About Hard Money Business Loans: 7 Trade Secrets
Hard money business loans can be a lucrative resource, and yet they are shrouded in stale rumors. Unfortunately, our culture’s ignorance can sometimes be a barrier that prevents borrowers from getting the best deal. But it doesn’t have to be that way. In today’s article, we will debunk the 7 most common misconceptions we see throughout the industry.
7 Myths (and Truths) About Hard Money Loans
So many misconceptions about hard money commercial loans can be remedied with a simple explanation. As established hard money lenders in Maryland we wouldn’t have invested our time, money, and energy into this business if it wasn’t sensible. Let’s get started discussing the top 7 myths surrounding hard money loans for business. 
- Hard Money Loans Have Low Standards
- HMLs Are People’s Last Choice
- Hard Money Funds Are Riddled with Risks
- Hard Money Business Loans Are More Costly
- Hard Money Lenders Are Loan Sharks
- Hard Money Providers Aren’t Legitimate Entities
- Hard Money Lending Companies Are Unregulated
Myth: Hard Money Loans Have No Standards
Truth: Hard money lenders (HML) are sometimes stereotyped as undiscerning, reckless lenders who will take just anybody. However, in reality, this isn’t the case.
Certainly, hard money business loans have more independence than banks because they directly lend from their own money or associates’ money. Thus, they can shape their requirements to meet their specific needs. So, if a deal is right, they may look past a potential borrower’s financial background and extenuating circumstances. Still, hard money lenders will not just indiscriminately hand out money to anyone who knocks on their doors.
What’s more, hard money loan providers ask for documentation to further gauge a project’s risks, create loan terms that account for those risks, and protect all parties from legal complications.
Myth: HMLs are People’s Last Choice
Truth: Many people associate hard money commercial loans with borrowers who have few options. While people in sticky situations can benefit from hard money business loans, they are far from the only ones who might pick this financing option.
Borrowers may choose a hard money loan over a conventional one because hard money lenders can offer qualities that traditional ones may not. For instance, traditional loans can take months to come to fruition. It can seem like forever until they receive funding. Meanwhile, hard money lenders can take mere weeks to process your loan, and that’s a conservative estimate.
Myth: Hard Money Funds Are Riddled with Risks
Truth: If hard money loan providers choose risky deals, then sure, in those times hard money business loans will be risky. However, taking on such deals is a choice, not a given. Hard money lenders vet prospective deals before they accept them to calculate risk for both them and the borrower.
In addition, the best hard money loan providers are often located in their service area, so they have a better understanding of their market. This makes them uniquely positioned to understand their broader lending context. They can assess your plans to see if they truly pass the sniff test and to judge if they would work well in practice.
Myth: Hard Money Business Loans Are More Costly
Truth: On paper, hard money commercial loans are more costly than traditional loans because they require higher interest rates and general closing costs. However, this can just be the cost at face value.
Hard money lenders often cover around 80% of your project’s total budget. This is huge compared to banks, which will only cover around half of their costs. So, you could have higher expenses. However, you also may funnel fewer funds to your overall project than you might with a traditional bank.
Furthermore, hard money loans can make your project more time effective. They can offer quicker approvals, for one. This streamlines your project so you can earn your ROI faster and gives you more room to add additional projects to your roster. and shorter repayment term requirements. Also, they can provide you with shorter loan term requirements, which can allow you to put your loan behind you and out of your life faster.
Myth: Hard Money Lenders Are Loan Sharks
Truth: This old-fashioned perception that all hard money lenders are ruthless loan sharks, is not a modern reality. Hard money loans have grown more mainstream, with high-status, high-level companies akin to banks all over the nation offering them. Furthermore, hard money loan providers live and die by their reputation, and most can’t afford to give their customers bad experiences.
All industries have bad actors, and the hard money business loan industry is included in that equation. However, just because there are bad actors out there doesn’t necessarily mean you are destined to deal with one. It’s all a matter of good judgment, doing research, and using general due diligence before you sign your papers.
Myth: Hard Money Providers Aren’t Legitimate Entities
Truth: People can be hesitant to get involved with hard money lending because they assume it isn’t a legitimate source of funds. However, hard money lenders are designed with the same goal as traditional banks: to lend money with due process.
The big difference is simply that hard money lenders are asset-based. In addition, borrowers can have more hands-on experiences than they would with banks. They can negotiate directly with their lender, work with more laidback underwriting guidelines as a result, and make sure the deal is realistic.
Myth: Hard Money Lending Companies Are Unregulated
Truth: Many borrowers wrongly assume that hard money lenders are completely unregulated, like the Wild West. In truth, though, various jurisdictions enforce various regulations on hard money lenders, including Maryland. Hard money loan providers must follow the law, just like traditional banks do. You simply should find lenders who openly share their terms and conditions.
Find a Reliable Hard Money Lender
Hard money loans can be confusing terrain, but they don’t have to be. Hard money lenders have many similar functions and goals that traditional banks do, but without the same administrative red tape and lengthy waiting times that you might experience.
Now that you understand the true nature of hard money loans, you can use them to your full benefit. As we emphasized before, loans are a delicate matter, and you shouldn’t leave your investment plans in the hands of just anyone. Luckily, we are a registered provider in Maryland whose founder has over 15 years of experience in the real estate industry. We know that customer service is imperative, and we will work with you every step of the way to make sure your project is a success. Contact us today to jumpstart your investment journey.
