The private lending market can often seem shrouded in secrecy, but in actuality hard money and private capital lenders can be a great untapped resource for commercial real estate investors. Here are answers to some of the most common questions that new investors have about hard money and private capital loans.

1. Is it safe to deal with hard money lenders?
   Reliable private capital lenders typically have guidelines that are fairly close to the regulations and laws that institutional lenders follow; however, private capital lenders have more flexibility in their guidelines, such as being able to choose whether to base the loan-to-value (LTV) rate on the purchase price, the current property value, or the “after repairs” value.
2. Are hard money lenders difficult to work with?
   Private capital lenders can often be easier to work with than institutional lenders simply because you’re dealing directly with the decision-maker rather than a middle-man or intermediary who is reporting to a committee.
3. Is hard money too expensive for my project?
   Hard money loans have higher interest rates than bank loans, so they are not practical or profitable for every project but, when time is of the essence, private capital lenders can close loans faster, which can save money on some projects, thereby canceling out the expenses of the hard money loan.
4. Where do I find reliable hard money lenders? You can find lenders through real estate industry resources (such as local and national journals), word of mouth, networking with other local investors or realtors, and online sources. It’s important, though, to always make sure that you research lenders online or ask the lender questions directly before establishing a relationship with them.
5. How does dealing with hard money lenders differ from dealing with bank lenders? When you are dealing with a private capital lender, you are usually dealing directly with the decision-maker, so you can get advice and feedback on your proposed project straight from the person who will be deciding whether to approve or reject your loans.
6. What are the stumbling blocks associated with hard money lenders?
   The things you have to watch out for are brokers who pose as private lenders but don’t actually control their own funding source, or they portfolio their loans and sell them off if they need funds. The other dubious lender trick to watch for is the upfront fee scam, when a supposed lender will ask for an outrageously large upfront fee before they will even look at your loan application. While most hard money lenders will charge a small fee to cover their processing costs, these fees should not be exorbitant.
7. How can using hard money loans benefit me and my project?
   Private capital lenders can process and approve loan applications faster than institutional lenders, allowing you to close your loan more quickly and take advantage of opportunities that you might otherwise miss out on. They will also fund commercial projects that institutional lenders may deem as too high risk or overlook issues in the borrower’s credit history that would result in immediate rejection by a bank lender.

If you have other questions about hard money and private capital loans and the programs offered by Montegra, contact us at 303-377-4181.