The recent recovery and subsequent boom of the real estate market has differed from past events in one significant way: it has happened in spite of the banks rather than because of them. Hard money lenders have stepped in where banks have been unable to lend and have proven to be a more reliable source of financing, especially in the commercial and investment-purpose real estate sectors. What has made hard money lending so popular? There are three main factors that have made private lenders a go-to resource for savvy investors:

1. Capital availability. Hard money lenders have kept the cash flowing while banks have had to restrict their lending and increase their requirements. Because of this, bridge lenders have not only carved out a larger niche for themselves in the commercial lending market, but have also played a crucial role in the recovery of the real estate market by making capital more easily available at a time when banks had all but closed up shop.
2. Fast financing. One of the main reasons that hard money loans have gained in popularity is speed of their application and approval process. In an industry in which time lost to loan processing can cost an investor thousands of dollars, if not the whole transaction, the importance of being able to get the needed funds in a matter of days or weeks rather than months cannot be overstated.
3. Funding for distressed properties. Hard money lenders have also proven themselves to be a key resource for capital with which to purchase distressed properties. In part, this goes hand-in-hand with their ability to finance loans quickly. However, there are other factors that also make them ideal lenders on these types of property: the ability to use the higher of the purchase price or appraised value for the LTV to determine the amount of the loan (whereas banks must use the lower of the two), and the option of including extra funds in the original loan amount to cover rehabilitation or other improvements to the property or to cover interest payments on the loan until the property is able to produce a steady stream of income (neither of which are typically possible with a loan from a traditional lender).

The continuing restrictions on traditional lenders that make it difficult for them to approve loans that would have been easy to get before the financial crisis have definitely led to a surge in the popularity of hard money lenders, who have proven themselves able to fund commercial loans quickly, even for distressed properties. With traditional lenders being forced to meet increasingly strict requirements, especially on the commercial lending front, this trend looks like it may become the new norm, rather than merely a passing fad.