As the lending environment continues to restrict financing, many borrowers continue to find it difficult to meet the traditional underwriting standards set by banks and other institutional lenders. Hard money lenders are stepping up and filling this gap. This is no longer financing just for those who have had credit problems. The majority of hard money loans in recent years have been made to investors who have cash and good credit but who can’t secure conventional funding because of the tightened lending criteria. Institutional lenders continue to be hesitant about lending on distressed properties or to take so long to underwrite a loan that the investment opportunity is missed. Hard money lenders are much more willing to lend on properties that may appear problematic to conventional lenders and can process and close on loans much faster.

Types of Financing Confused with Hard Money

Other types of nonconventional loans are often confused with hard money loans. Here is a simple delineation of their differences:

• Hard money financing – hard money financing used to provide quick financing on real estate purchases, these loans are secured by real estate assets. They are usually issued by private lenders with higher interest rates and fees than conventional lenders to counter the higher risks which are being taken on.
• Bridge loan – bridge loans are used for short-term financing, typically for a matter of weeks but not more than a couple of years, while waiting for long-term financing to come through. It is a way for borrowers or investors to maintain liquidity while
• Blanket loan/mortgage – Blanket loans are used to finance or refinance the purchase of more than one property rather than securing new individual mortgages for each piece of real estate. Portions of the mortgage are released as parcels are sold while the remainder of the mortgage remains intact.
• Mezzanine financing – typically used to finance company expansions. This is a hybrid of debt and equity financing which allows lenders to convert the debt to ownership or equity interest in the company if the loan is not repaid on time. This is generally set up as subordinated debt to another first-position loan.

This blog was written by Bob Amter, President of Montegra Capital Resources, LTD., a Colorado hard money lender.  [google_authorship] has been in the private capital lending business for 41 consecutive years.