Private hard money lenders are often individuals or small companies that provide special kinds of real estate loans for various asset classes. What sets these leaders apart from your ordinary lending entities is their ability to give bridge loans or short-term loans to delinquent or high-risk borrowers, with the loan amount denoted by the collateral property’s value. Due to the higher degree of risk involved in lending money to such borrowers, these money lenders usually charge bigger interest rates compared to brokers and banks (among other financial institutions) as they handle transactions that the latter does not. These lenders have come into play by necessity – to provide loan services to borrowers who are unable to receive financial aid because of the current climate of the real estate mortgage industry.
Borrowers who cannot work with the customary lending entities often work with private hard money lenders to alleviate their mortgage concerns, in spite of the higher rates involved. These types of transactions are risky, although the danger of defaulted payments for the lender is lessened by the ten to thirty-percent equity boosting the security of the loan. Aside from individual borrowers, high-risk companies also work with these lenders, as they, too, may have been unable to transact with larger lenders because of the increasingly stringent guidelines for underwriting the latter implement.
Private hard money lenders can recoup their expenses from these bridge loans or short-term loans through the interest rates they charge, which can range from a low of eleven percent to a high of around sixteen percent – much higher than what banks charge. The loans may be used for a variety of purposes, with the purchase, refinancing, or construction of commercial pieces of real estate among them. Bridge loans can also ameliorate the consequences of a borrower’s bankruptcy or foreclosure of the property, as well as enhance the chances of obtaining a loan to purchase land, such as commercial or residential parcels of real estate.
Private hard money lenders will transact with a borrower based on their analysis of his or her hard assets. Transactions with these lenders comprise partial property deed release, payments focused solely on interest, and participation, resulting in typically quicker turnaround time, and with the property’s value as collateral.
Private hard money lenders can enable delinquent borrowers or high-risk businesses to obtain much-needed financial support when needed, with the loan money usually given to the latter faster than ordinary lenders can. However, one has to ensure that after the loan is awarded, one has a solid strategy and comprehensive business plan to pay the loan as agreed upon prior to its release.