One of the most popular questions we get is “Why hard money lending?” There are several ways to get loans, so what makes hard money lending the best option? Why not just go through my bank or have a friend loan the money? In this post, we’ll break down that question to help you determine if hard money lending is the right option for you.
What is the difference between a traditional bank loan and a hard money loan?
Commercial banks focus on two main things: your credit and your ability to make monthly payments based on income. They will scrutinize every point on your credit report and a history with bankruptcy can seriously hurt your chances of receiving any type of loan. At WCP, we don’t focus on your credit history. We understand that a bad economy or a loss during the 2008 crash doesn’t define you. Our business is built on the fact that we are completely asset-based, which means we focus on the after repair value (ARV) of the property, not your financial strength, and your loan is structured based on that number. Once you find the right property to invest in, we are here to back you financially.
What is the time frame for closing?
Hard money lending allows the borrower to close quickly, sometimes in just 24 hours depending on the deal. With a traditional bank loan, you are required to jump through several hoops, which means your project is on the bank’s time – not yours. The bank will evaluate your credit score, send out an appraiser, wait to approve the loan, send it to accounting, and have accounting send you the money. This process can take anywhere from one to several months. We understand you might not have the time to wait – you found a property and you want to close on the loan now. At WCP we have an in-house valuation process where we can send someone out within 24 hours of your request. All approvals are also done in-house so we have a very quick turnaround.
Couldn’t I just ask a friend or relative to lend me the money?
If someone you know lends you the money, 9 out of 10 times they will expect a partnership – to start, they want 50% of the return. So, automatically your own profit is down to half of what you make off the sale. Our loans, while the interest may be higher than commercial bank loans, are not half of the profit.
As a hard money lender we are able to give much larger loans than the bank, along with that comes a greater risk. This is why interest rates for hard money loans are higher than those on bank loans. But, the greater the risk, the greater your reward. We at WCP have been in your shoes, we have done similar deals ourselves and are able to look at the deal as if we are the investor. When it comes to valuing a property, we have the experience and expertise to tell you if the project is a good idea, or if you should keep looking. If you use a friend or relative, chances are they won’t be able to give you the value and insight that we have been trained to provide. With this added advantage of receiving professional feedback, you have the opportunity to benefit from the lessons we have learned over the years in this business.