The “hard” in hard money lending is a misnomer. In actuality, hard money loans are often the quickest and most straightforward financing option, especially with the increasingly strict requirements that need to be met to qualify for commercial real estate mortgages from banks and other institutional lenders. Hard money, or private capital, lenders have the advantage of controlling their own funds and making their own decisions about the deals that are presented to them. The benefits of using hard money loans to purchase commercial and investment-purpose residential real estate can be summed up with the following three qualities: availability, adaptability, and affordability.

Availability

It doesn’t take complicated math to determine that there is more private capital than public funding available in the U.S. Working with a hard money or private capital lender grants you access to more funds with fewer requirements and restrictions. It also puts you in direct communication with the decision-maker rather than having to deal with the middlemen and loan committees that approve loans for banks and other institutional lenders. Additionally, since private lenders make money off of each individual deal, they are more interested in funding promising loans than their institutional counterparts.

Adaptability

Because private lenders don’t have to meet the guidelines imposed by Federal regulatory agencies such as the FDIC, they have the flexibility to adapt their loans to meet the needs of the borrower or situation. Therefore, they are more willing to consider extenuating circumstances and approve borrowers with problematic credit histories or loans for distressed or troubled properties. Private lenders are usually very familiar with the local real estate market and will understand when an unconventional deal is actually a prime opportunity that is not to be missed, such as a property that can be purchased for less than fair market value.

Affordability

The minimal red tape and reduced overhead costs associated with private lenders can often lead to loan costs that are not much more than a conventional commercial real estate loan, although the interest rates are generally higher. The higher interest rates are often offset by the quick timeframe in which the loan can be obtained and the income that will be ultimately realized from being able to seize the opportunity presented by the deal, whether it’s a property that will be resold at a higher price or one that will produce more cash flow once it’s renovated or leased up.