Run a Google search on the most important aspects of hard money lending and you are likely to run across tons of posts discussing everything from speed to asset focus to higher interest rates in shorter terms. All those things are definitely worth knowing to someone new to hard money. But to me, there is another aspect that is truly underrated: simplicity.
I have applied for my fair share of consumer credit products. From car loans to mortgages to credit cards to personal loans, I have done it all. One thing I have noticed is that consumer lending seems to be a lot more complicated than it has to be. My research tells me that commercial lending is no different.
Apply for a small business loan and you can expect to jump through hoops. You can expect to get requests from your loan officer regarding things you know nothing about. You can even expect to be confused by the terminology you hear along the way. Hard money is a lot simpler in most respects.
Built on a Basic Premise
The thing about hard money is that it is built on a basic premise. This premise is as follows: private individuals or entities loan out their own money to investors, business owners, and entrepreneurs. They approve or deny loans based on asset value. That’s really all there is to it.
Actium Partners is a hard money lender based in Salt Lake City, Utah. The firm manages a fund consisting of financial resources from multiple investors. Actium makes lending decisions on behalf of the group. They make, oversee, and manage the loans.
There are no banks involved. There are no boards to deal with. As a private lender, Actium Partners is not subject to the same cumbersome regulations banks and credit unions must adhere to. As a result, they can do things differently.
Minimal Paperwork
The simplicity of hard money makes it possible for lenders to underwrite with minimal paperwork. To illustrate the point, consider an investor looking to purchase a new piece of property in Salt Lake City. He puts together a lending proposal and sends it along with information about the property, his own appraisal, and the actual loan application. That’s it.
He is not going to get a call three weeks down the road from a loan officer looking for more documents. He will not have to provide payment stubs, tax forms, a profit and loss statement, etc. None of that matters because hard money lending is based on asset value.
It’s Either There or It’s Not
Hard money lenders base approval decisions on asset value. Going back to the previous example, the lender would look at the current value of the property being acquired. The property needs to have enough inherent value to cover the loan and any associated costs. Determining value is as simple as conducting an appraisal.
When all is said and done, the value is either there or it’s not. If it is, the loan will likely be approved. If not, the loan will be rejected. It is pretty straightforward. Loan approvals can be made within a day or two. Another day or two and an approved loan is funded.
Compared to traditional loans, hard money loans are surprisingly simple. That’s one of the things I most appreciate about hard money. I have jumped through the hoops related to home mortgages and auto loans. I am not a big hoop jumping guy. If I ever have a financial need for which hard money would be appropriate, I will not hesitate to apply.