Sometimes, hard money lending can also be called equity lending, private lending, trust deed investing, and private lending. These terms are interchangeable. It is usually short-term, low-leverage loans that are backed with equity in hard assets. Real estate is the most commonly owned asset.
You can also contact hard money lenders online to get hard money business loans.
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This is just a brief overview, but hard money lending can be distinguished from conventional lending in this way:
Cash flow lending is what I refer to as conventional (bank) loans. The primary factors that underwrite a loan are the borrower's creditworthiness and willingness to pay. While the collateral is an important consideration, so is the value of the actual property.
This includes your credit history, income level, and stability. Commercially, it refers to the property's ability and financial situation to pay the debt. The primary concern is your ability to pay the monthly loan repayments.
This is where hard money loans can help. The collateral is what the collateral is. How much of the property is worth? What equity protection does it offer to protect the loan? Lenders are concerned that borrowers who default on loans and have to foreclose can quickly and easily dispose of the property and get back all their principal, interest, and fees.
Exit strategies are the second crucial factor in hard money sub writing. This is how the borrower will repay the loan at the conclusion of the term. These loans are usually short-term, lasting between 1 and 5 years. A clear strategy must be developed for repayment.
These factors are below the creditworthiness of the borrower: their ability and willingness to pay monthly loan payments. This was not a factor before the credit crisis. Even hard money has been paying more attention to borrowers' ability to pay back the debt.
Although hard money lending, as we know it today, has existed for decades. It had a reputation of being similar to loan sharking up until about 20 years ago.