What Is A Hard Money Loan?

The variety of lending options available to the average person on Earth continues to grow. The industry has largely recognized that it needed to do something to serve as many people as possible in terms of providing unique lending options for all of the various circumstances that a person might be in. The traditional lending industry has not done a good job of keeping up with a lot of the trends in the way that people borrow and use money. It has been their loss as many have drifted away from them and into the arms of companies that are willing to do things in an alternative way.

What Is A Hard Money Loan?

A hard money loan is something that can be defined in a number of ways. The most basic definition is the easiest way to understand though, so that is worth sticking to for our purposes. It is simply a loan that a person borrows from a third-party (typically a credit union or a wealthy individual) while using some valuable property that they own as collateral on the loan.

It is called a “hard money” loan because there is a hard asset that is backing up the lending in the first place. In this case, the thing that is backing up the lender is the property that the borrow has put up as collateral. The borrower is saying that they are willing to wager some piece of property that they have in order to get the money from the loan that they require today. When you view it like this, it makes a lot of sense that some people prefer this method of borrowing in comparison to borrowing from a traditional lender.

When Does Hard Money Lending Have A Leg Up?

There are in fact times and circumstances when hard money lending has a significant leg up on other forms of borrowing. For example, if there is a person who needs to have their loan money very quickly, they do not want to go through the traditional lending process. It takes forever due to the number of regulatory hurdles set up in the way of banks. Thus, the money can take many months or longer to get to its intended source. Instead of doing that, one might consider taking out a hard money loan with someone that they know to make it easier on them to pay that person back and get the money faster.

One of the career fields that sees a lot of people borrowing from hard money lenders is actually those who flip houses for a living. The reason they do this so frequently is because it is easier for them to borrow on the house they intend to flip from an individual than to try to borrow that same money from a bank. It just makes sense in their world to take the faster option since they are only planning on holding onto the house for a short period of time anyway.

At the end of the day, we are all made better by the existence of these loans in our lives for flexibility and speed of borrowing purposes for the most part.

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