Although hard money or bridge loans got a bad rap during the housing crisis, often seen as coming from possibly disreputable sources, they are no longer the sole domain of the low-end house-flipper or the bad-credit borrower. In the post-housing crisis lending market, hard money loans are frequently used by savvy investors looking to fund high-end projects that just don’t fit into the narrow confines of conventional commercial mortgage requirements that are underwritten by banks and other institutional lenders. In recent years, many hard money lenders have found themselves funding larger loans for higher-end projects as investors who want to take advantage of commercial real estate opportunities find institutional lenders are tightening the purse strings.

Everyone knows that hard money financing is more expensive than conventional financing, so what are the benefits to using high-interest loans to finance already expensive projects?

Speedy underwriting and quick closings. Usually viewed as one of the biggest benefits of obtaining hard money financing, the approval and application process is significantly faster than conventional lending, with most loans being approved in two to three weeks, while some can be approved in even less time, depending on the situation. And as we all know, time is money, especially in commercial real estate investing.

Additional funds for renovation expenses. One of the other most popular benefits of hard money loans is that it is often possible for borrowers to increase the loan amount so that it covers more than simply purchasing the necessary real estate. This is possible because hard money lenders base their loan amounts on whichever is higher between the purchase price and property value, rather than whichever is lower. In addition, they are more willing to consider the after-repairs value in lieu of the as-is value. Thus, an investor who finds a discounted property that needs a few renovations to make it a high-end, profitable property can obtain the necessary funds in time to take full advantage of a lucrative deal, whose profits will cancel out any additional financing costs.

Flexible and creative loan terms. Hard money lending is not one-size-fits-all. Private lenders are willing to work with borrowers to create a custom loan product with terms that fit the deal instead of trying to wedge a square deal into a round loan. Borrowers will find that these lenders typically want to know more about the stories and details behind the numbers on the page for a property, so borrowers should be prepared to explain their vision for the investment.

These are just a few of the many ways in which the benefits of hard money and private capital loans can outweigh their costs and result in high investment returns for both lender and borrower.

If you have a project in need of private capital financing, contact Montegra at 303-377-4181 to discuss your loan request and find out more about our hard money lending programs.