Hard money loans aren’t the answer to every deal, but they are the answer for some deals that are unlikely to come to fruition if you only seek financing from traditional lenders. Here are four common situations in which having a hard money lender in your financial toolkit can definitely pay off. 

  1. Purchases requiring a speedy closing: While traditional loans are closed in months, hard money loans can close in mere weeks. In special circumstances and with the right qualifications and documentation, hard money loans can even close in a matter of days. This speed allows investors to take advantage of deals that they would otherwise miss out on.
  2. High-yield investments: Hard money lenders provide the funds and flexibility to acquire higher-risk assets that will hopefully produce higher returns. Traditional lenders are much less likely to approve commercial loans for properties in need of improvements, but those are the properties that are most likely to yield profits. When you have a property that you’re likely to see a 50% return on resale, then a slightly higher interest rate is a reasonable expense relative to your anticipated profit.
  3. Distressed properties: While traditional lenders only consider a property’s as-is value, hard money lenders will usually consider its renovated value. This difference may seem to be semantics, but it can result in a greater loan amount allowing you the funds to both pay for and improve the property since most hard money lenders are willing to consider providing funds over the purchase price that can be used to make loan payments or to cover improvement costs. This helps you increase your return and keep more of your equity available for other deals.
  4. Difficulties qualifying for traditional financing: Hard money loans are ideal for borrowers who need out-of-the-bank financing for one reason or another. Hard money lenders have the flexibility to establish their own requirements independent of federal regulations. While traditional lenders must consider global cash flow, total debt, and credit scores, hard money lenders have the option to fund any loans that they feel are good investments to any borrowers who they believe will repay the funds. This means that as a borrower, your business plan, potential asset, character, and down payment funds are more crucial to getting your hard money loan approved than the numbers and boxes checked off by the bank.