Hard money lenders are often accused of being loan sharks, but in reality, they are respectable small business owners who make above-the-board asset-secured loans and conduct due diligence into their borrowers. However, this doesn’t mean that everyone who claims to be a hard money lender actually is one. It’s important to watch out for less reputable “lenders” who are actually brokers, or complete frauds. In this blog, we’ll share the final seven red flags to watch out for:

1. Approval is guaranteed without a credit history check. Hard money lenders will overlook past credit mistakes, but this doesn’t mean that they won’t ask about them. Hard money lenders want to profit from interest on repaid loans, not be forced to foreclose on properties they don’t want to manage or own.
2. The borrower must decide to accept the loan immediately. Reputable hard money lenders will provide a sheet of terms and a commitment letter that the borrower can take away with them before they decide whether or not to proceed with the loan. If the lender is pressuring the borrower to accept the loan on the spot, then it can be because the lender doesn’t want the borrower to be able to do any research into them or their business.
3. Lender has no website. Reputable lenders have websites with information about their lending programs and recent loans they’ve closed as well as the physical location of their business. This doesn’t mean that every lender with website is legitimate, but be especially wary of those who don’t have a verifiable presence on the internet.
4. Their emails are sent from a generic account. Scammers are known for using Gmail, Yahoo, Hotmail, and other free email account providers rather than shelling out the money for an email with their company’s website domain name in it (e.g., name@company.com).
5. Lender offers 100% financing. Although borrowers who are new to real estate investing may be looking for ways to buy properties without putting up any of their own capital, this is rarely possible with reputable hard money lenders, but is often used by fake lenders to draw inexperienced investors in for either a bait-and-switch or a loan-fee scam.
6. Lender is unlicensed. While there isn’t the same kind of licensing for private lenders as for banks and other institutional lenders, most will have some sort of real estate licensing or affiliation with professional organizations that they will have posted or be willing to share. Many lenders will also be registered with their local Better Business Bureau, though this is not a requirement.
7. Lender is unwilling to provide references. Reputable lenders will happily provide references of others that have gotten funding through them so that you can contact them yourself.

As these red flags show, it’s just as important to conduct due diligence on your hard money lender as it is for any potential real estate investment. Your best bet is to find a lender that is professional and local so that you have the opportunity to deal with them in person. Check out part 1 of this blog for the rest of the red flags to watch out for.