In the business community, money is either ‘soft’ or ‘hard’. Ordinarily, soft money is much simpler to qualify for and the terms and conditions involved are manageable plus they seem a lot more humane. On the other hand, hard money is more punitive and those dealing in it are generally shrewder when doing business. It may not necessarily be harder to get, but the terms are so restrictive that one would feel like the hard money lenders actually do not have a heart for business people. Hard money is also referred to as ‘Private money’ because the funds often come from private individuals with a whole lot of money available with them. This money comes from individuals with business minds therefore their first step is to protect their money from disappearing into thin air so they make their terms very strict.
The conditions vary from one lender to another and over the years have been modified as and when the lender suits. Since it is not a conventional field of offering loans, there is bound to be a lot of questions asked about how one can actually get a loan from them. For starters, they will mostly offer loans up to 70% ARV (after repaired value). This simply means that a hard money lender will offer you 70% of the collateral you are offering. If you are offering your house as collateral, the value of the house in repaired condition will be calculated and 70% of that amount will be available as a loan for you. Therefore if your house is worth say $45,000 currently, and needs $20,000 in repair and facelift, after repair, the new market value is $100,000 so they will offer you up to $70,000 to cover the cost of the house and repairs.
Other things you should expect when dealing with hard money lenders include short repayment periods, interest higher than those prevailing in the market (between 11% to 16% or more), quick but thorough processes of ascertaining your credit worth and penalties and fines for late or insufficient payment.
Sometimes, the hard money lenders are represented by a broker who arranges the loan. He usually takes a commission called ?points?: which is the fee for finding a lender and preparing all the necessary documentation.
Hard money Lenders generally provide finance for the following;
– Dealer inventory
– Equipment purchases
– Leveraged buy outs
– Employee buyouts
– Dry cleaners
– Gas stations
– Manufacturing plants
– Country clubs and hotels
– Manufacturing plants and a host of other projects.