It is often said that hard money lending is an option of last resort for people who need to borrow but cannot get bank loans. That is unfortunate because it is not true. Hard money lending is not an option of last resort. In fact, it is the first and preferred option among certain types of borrowers. Real estate investors are among them.
A core group of real estate investors in Utah turn to Actium Partners as their preferred lender. Actium is their first choice. Why? Because like most other hard money lenders, Actium Partners brings two things to the table, two things that are incredibly important to real estate investors.
They are described below as reasons hard money is the first option lending in so many cases.
Reason #1: Hard Money Is Fast
Hard money offers a lot of advantages over traditional funding when it comes to real estate investing. But the number one advantage is arguably speed. Simply put, hard money is fast money. How fast? That depends on the lender and the deal. But a few days is normal. Hard money lenders certainly don’t need months to do what they do.
Using Actium Partners as an example, they once received a call from a panicked borrower set to close on a property on Monday morning. It was the previous Friday when Actium got the call. For his part, the borrower had already arranged financing, but the bank backed out at the last minute. If the borrower couldn’t find another lender to help him out, he would have lost the deal.
Actium was able to send out an appraiser that very same day. By Friday afternoon, the team was back at the office drawing up paperwork. That paperwork was forwarded to the title company, along with funding, on Monday morning. In less than one business day, Actium secured the deal. That would never happen with a bank.
Reason #2: Paperwork Requirements Are Minimal
The second reason real estate investors prefer hard money as a first option is the fact that paperwork requirements are minimal. Hard money lenders do not require much. By contrast, banks tend to require reams of documents. If you have ever purchased a home with a mortgage, you know the drill. Things are a lot worse when you’re buying commercial property.
Every real estate investor knows that the document requests begin almost immediately when applying for a traditional loan. But it’s not a one-time thing. Banks seem to request all sorts of documents in a process that could last months. Three months down the road, an investor could still be sending documents.
The challenge for property investors is to come up with the right documentation that will satisfy the bank. That is not easy. Real estate investing is considered a business under the law, but it’s a different kind of business. It can be nearly impossible for an investor to produce things like P&L statements balance sheets. When they cannot, how else can they satisfy a bank’s need to determine creditworthiness?
A Different Kind of Lending
It all boils down to the fact that hard money lending is a different kind of lending. Hard money lenders do things differently. They follow different rules, have different procedures, etc. Because of the way they do business, real estate investors tend to prefer them over banks.
Despite what you may have heard, hard money lending is not a lending option of last resort. So many borrowers, particularly real estate investors, make hard money the first option. Instead, traditional financing is the option of last resort.