As other sectors of the lending industry have cut back on the financing they provide, hard money and private capital lenders have stepped in to fill the void. In a world where property deals come and go in the blink of an eye but bank loans can take months to close, the alacrity and creativity that hard money lenders bring to the process has become increasingly in demand. There are myriad reasons behind this flourish in hard money lending, but here are four main ones:

1. The loans are mutually beneficial to borrower and lender. The lender is compensated for the higher risks associated with private capital lending through the returns from the higher interest rates. Likewise, the borrower is compensated for the high interest payments with flexible loan terms and a quick underwriting process to put funds in his or her hands when they need them.
2. Hard money is one of the few financial options available. The housing crisis and recession have left a lot of people with black smudges on their credit history, unable to qualify for conventional loans from banks and other institutional lenders. For these borrowers, private loans provide them with access to the credit they need based on the equity they have without worrying over problems that happened in the past. Hard money lenders distinguish themselves from other institutional lenders by being willing to listen to the reasons behind a low credit score before writing a borrower off as a bad investment.
3. Equity is king (or queen). Hard money loans come in all shapes and sizes and can be used in situations that bank loans cannot, such as cashing out the equity in a property you already own or rehabilitating a distressed property. Unlike banks, which base their underwriting on credit history and debt-to-income ratios, private lenders value equity over all things. This is especially helpful to borrowers who can’t satisfy the banks requirements (for example, if they’re self-employed), but have valuable assets to serve as collateral for the loan.

Private loans realize significant returns for investors. In addition to appealing to borrowers in need, hard money lending also attracts investors who want to benefit from real estate investments without having to directly manage the properties themselves. Many hard money and private capital lenders, such as Montegra Capital Resources, offer funds for individuals to invest in, which allow them to help fund much larger projects than they could on their own without having to navigate the ins and outs of hard money underwriting directly. As an investor, regardless of the level of participation, the cushion provided by low LTV rates and higher interest rates mean that the return on investment for hard money loans can be significantly higher than other, more traditional investment vehicles.