Quick money lenders are frequently referred to as a last resort by mortgage industry insiders. While this is accurate to the extent that many borrowers who seek loans from quick credit money lenders do so as a last choice, there are many instances where a quick moneylender should be approached before a standard bank. Let’s look at several circumstances in which a quick credit money lender could be a first choice rather than a last resort:
- Development of commercial real estate
Assume a real estate developer has invested $10 million in a development project to sell apartments in January and subsequently recouping their investment dollars from the project. Delays may put out the start of sales, or the project may run over budget, placing the developer in an adverse cash-flow condition, as is the case with many similar projects. The developer will now need a bridging loan to get through his cash-strapped phase and “survive” until the project returns to a cash-positive position. In a traditional loan, the bank would take four to six weeks to process the loan for the borrower.
- Rehabilitation Investor
A rehab investor in need of a loan to rehabilitate run-down non-owner-occupied homes is another example of a quick money scenario. Most banks would avoid this loan since they wouldn’t be able to verify that the rehabber will sell the units quickly for a profit, especially since there are no present tenants to pay the mortgage. In all likelihood, the quick money lender would be the only one ready to consider such a project.
- Flipping properties
Real estate investors aiming to “flip” houses may also engage hard money lenders as a first choice rather than a last resort. If an investor finds a property they believe is a good deal, they may require rapid and secure finance to purchase, refurbish, and sell it. Anyone trying to flip real estate does not want to be tied down to the property for an extended time, and a hard money lender can help with that. The loan could potentially be arranged as an interest-only loan to keep costs down.
- A foreclosure borrower
Most lenders will not give a homeowner a loan or restructure their present loan if they fall behind on their payments. An individual facing foreclosure may seek a hard money loan to avoid foreclosure procedures and sell the property during that period. Why would quick credit money lenders provide money if a typical bank wouldn’t even contemplate taking such a risk?
There are two parts to the answer. The first is that quick money lenders charge higher interest rates than conventional lenders. The second is that hard money lenders demand that the borrower have a minimum of 25-30% equity in the property as collateral.
Conclusion
A Quick Credit Money Lender is essentially a union between a borrower in a tight place (either owing to a time constraint or poor financials) and a risk-averse lender prepared to take a chance in exchange for a higher return. While hard money loans may be the last resort for many people, there are times when they are the only option.
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