Hard money loans are often seen as a last resort for borrowers who have bad credits or other troubled circumstances. However, in actuality, these loans can be a strategic financial tool that savvy developers and investors should also have in their toolbox in order to better expand their real estate portfolios and take advantage of good deals as they arise.

The following are five situations in which even investors and developers with strong financial standing and good credit history who do have access to bank financing will choose to utilize hard money:

1. When the borrower needs a quick closing that the banks cannot accommodate.
2. When the borrower has more real estate opportunities than cash.
3. When the borrower prefers to focus his or her energy on hunting down new opportunities instead of trying to raise funds or equity from various smaller investors.
4. When the borrower does not have the time, or patience, to deal with the red tape involved with securing a conventional loan.
5. When the borrower has an existing line of credit from a bank, but needs a larger loan than the existing credit line would allow.

So why use a hard money lender? The common thread that runs through these five situations is that in all of them, the borrower stands to generate either significant profits or substantial savings that offset the additional expenses associated with hard money loans (e.g., higher interest rates and origination fees). Hard money lenders offer a combination of quicker response time and faster underwriting that can help even financial-secure investors or developers take advantage of real estate deals that they might otherwise be forced to pass up.

Hard money lenders are also ideal for investors and developers because they are mainly interested in lending on commercial and non-owner-occupied properties. Commercial properties can include industrial, retail, office, hospitality, and mixed-use properties. Hard money lenders are also usually willing to lend on undeveloped land that is zoned for commercial use.

Investors and developers will also choose to use hard money loans if they are buying a distressed or problem property, because hard money lenders are more willing than traditional lenders to include additional funding for construction costs as well as provide sufficient funds to make loan payments during the construction period as part of the loan. This allows the investor to keep more of their own money in their pockets until the property begins to produce sufficient income to be profitable and allow them to either refinance it with a conventional loan or flip it.

This blog was written by Bob Amter, President of Montegra Capital Resources, LTD., a Colorado hard money lender.  [google_authorship] has been in the private capital lending business for 41 consecutive years.