Even if you qualify for a traditional bank loan, it can be a time-consuming and red-tape-filled process. Also, while traditional lenders approach the lending process looking for what requirements your application doesn’t meet, hard money lenders come at it from a more positive point of view, looking for the reasons they want to finance your loan. Also, with hard money loans, you usually deal directly with the decision-maker rather than with an institution and a committee. This flexible approach to lending is one quality that attracts borrowers. The following are five more reasons to consider applying for a hard money loan:

1. You have bad credit. Banks qualify the borrower first and then look at the collateral, whereas hard money lenders operate vice versa, focusing on the collateral above all.
2. You have difficulty proving your income. Investors and self-employed borrowers often find it hard to document all of their income in such a way that it meets a bank’s lending requirements. Private lenders are more flexible about documentation as long as they are assured that the loan will be repaid and that the borrower has a feasible exit strategy.
3. The property is in distressed condition. Banks and other institutions are very unwilling to lend on commercial property if it is not currently producing income, if it is in need of major renovations, or if it has a high vacancy rate. However, private lenders are much more likely to consider a property’s value at full occupancy or post-rehab as long as the borrower shows that he or she has a valid business plan to justify an increase in the property’s value.
4. You want to close quickly. Hard money lenders can close on loans much more expeditiously than banks and other institutional lenders. This promise of swift funding can sometimes help borrowers negotiate lower prices with sellers, especially if they’re worried about funding coming through.
5. Less money is required upfront. Banks usually require large down-payments, especially on commercial real estate loans, and are very rarely willing to lend additional funds to cover repairs and other construction. Private lenders typically require very little in the way of down-payments and will often include funds to cover rehab costs, or even interest payments, in the total loan amount as long as the property’s loan-to-value supports it.

As banks and other institutional lenders tighten their purse strings and make commercial lending requirements more stringent, hard money loans increasingly become a necessary tool for savvy investors to explore and consider as part of their financing toolbox.