Hard money is frequently described as being more flexible than traditional financing. As a general rule, that is true. But flexibility is relative. It is relative to lenders and the amount they are willing to flex in order to accommodate borrowers.
In Salt Lake City, Utah, Actium Partners tries to be as flexible as possible with each project. But they are quick to explain that they have their limits. They say that flexibility is a possibility, but not always a given. There are times hard money lenders need to limit their flexibility.
Still More Flexible Than Banks
ue that there are exceptions to every rule. But more often than not, even the least flexible hard money lenders are still more flexible than banks. Traditional bank lending is tied to a strict set of rules and regulations that are not flexible at all. Banks need to be very stringent in their compliance. But because hard money lenders are private lenders, they have considerably more freedom.
5 Ways Hard Money Lenders Can Be More Flexible
Flexibility is more common in hard money because lenders have more opportunity to be flexible. Consider the following five examples:
- Loan Terms – Hard money loans typically have terms ranging from 6-36 months. That is pretty short compared to the 20 and 30-year loans banks make. But anywhere within that 30-month range, lenders and borrowers can settle on an amicable term.
- Loan Structure – Hard money lenders have flexibility in terms of loan structure. One loan could be structured as a bridge loan with a repayment term of just 6 months. Another could be a 24-month deal structured as an interest-only loan.
- Repayment Schedules – A strict repayment schedule is not absolutely necessary in the hard money game. Lenders can certainly accept monthly payments. But they can also accept quarterly, annual, or lump sum payments as well.
- Interest Rates – Hard money lenders tend to charge comparatively higher interest rates. However, they are not locked into one particular rate. Lenders and borrowers can work out a rate that is amicable to both.
- Loan-to-Value Ratios – Likewise, lender LTVs are lower in hard money. But they are also more flexible. A lender has a lot more room with an LTV based on the circumstances of each project.
According to Actium Partners, some lenders are willing to negotiate just about every aspect of a hard money deal. Others are more circumspect in this regard. What is most important is the fact that hard money lenders have a lot more freedom in their lending practices.
Why It Matters to Borrowers
If you have never looked into hard money before, you might not understand why flexibility is so attractive to borrowers. Your average borrower is a real estate investor looking to obtain new property. That said, a smaller percentage of hard money loans go to business owners looking to expand, develop property, or make capital investments.
The one similarity all borrowing scenarios have in common is that they are not typical. And because of that, banks tend to be cautious about getting involved. Banks like typical scenarios that fit the mold. They don’t like atypical scenarios. As for hard money lenders, such scenarios do not bother them.
Hard money lenders have the flexibility to meet the needs of an atypical lending scenario. They have the flexibility to meet borrowers wherever they are at. This works out well for both parties. Lenders win by having profitable projects to invest in. Meanwhile, borrowers have access to funding that would not be possible through more traditional lending channels. And yet, there are no guarantees.
