Recently, regulators have been cracking down on disreputable hard money lenders who were running lend-to-own scams (making loans they knew the borrower couldn’t repay in order to foreclose on the property) rather than operating legitimate hard money lending businesses. It’s important for borrowers to know that while such lenders exist, the majority of hard money lenders want a return on their investment (your loan), not a property to manage. Here’s the truth behind other myths about hard money lending:

1. The Myth: Hard money lenders are just loan sharks. The Truth: Most successful hard money lenders are business people who have years of hands-on experience with their local real estate market and property management or commercial real estate investment. They fill a gap in the lending market by offering loans beyond the boundaries set by traditional institutions. They also rely on a good reputation, so they want satisfied borrowers and clients to provide positive referrals to future borrowers.
2. The Myth: Hard money lenders don’t care about their borrowers. The Truth: Hard money lenders are actually more interested in developing a relationship with their borrowers than most institutional lenders. They want to know the stories behind your credit history as well as the deal you’re asking them to finance. The things that make a project not work for an institutional lender can be what makes it attractive to a hard money lender.
3. The Myth: Hard money loans should only be a last resort. The Truth: They can be used in times when you need quick funding, flexible structuring, or short-term financing to bridge a gap, but they can also be used when a project just doesn’t fit the stringent requirements of the bank lenders.
4. The Myth: Hard money loans can’t be approved in less than a week. The Truth: Although the standard timeframe for most hard money lenders is two weeks or so to close, if you work with your lender and provide the right documentation and necessary information in a timely manner, it is possible to close in a matter of days in some situations.
5. The Myth: The cost of hard money financing is too high. The Truth: While hard money loans are not suited to all deals, there are many situations in which the costs are outweighed by the profits. It’s important to conduct your due diligence as a borrower to determine whether the loan offered by your hard money lender is the right fit for your project.
6. The Myth: Hard money loans are risky. The Truth: Actually, hard money lenders tend to be more risk averse than their traditional counterparts because, unlike bank employees, they are lending their own money. Therefore, they look for borrowers who they believe will actually repay the loan and projects that they believe will be successful.
7. The Myth: “Hard” stands for how difficult the loans are to obtain. The Truth: In reality, “hard” refers to the fact that the money is secured by a “hard” asset, the real property. These loans are not hard to obtain. In fact, hard money lenders have less red tape and hoops for borrowers to jump through before getting financed, making the process easier and less time-consuming.