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Myth vs Fact In
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| Myth | Fact |
|---|---|
| Hard money financing is a transaction of last resort on the part of the borrower. | Hard money is the first choice for some borrowers. A good hard-money lender will not loan against poor assets or to a poor risk. The loan simply must have a strategic value that will complete a sound transaction or business purpose. that way, it will justify the higher lending rate. In many cases, hard-money lending provides great opportunities for both the borrower and the lender. It's not "us against them." In commercial lending the transaction has to be a "win-win" or it's not worth doing. |
| Hard money financing has expensive fees and penalties. | Not necessarily. Consider the overall loan rate and conditions. Compare the cost of the loan to the lost opportunity or the cost of an equity partner. We never hide the cost of the loan and it's a simple matter to analyze the cost of the loan vs other alternatives, such as an equity partner. In addition, we don't like loans with prepayment penalties either, so in most cases, we won't even offer you that option. |
| The only clients using hard money are overextended or have poor credit. | Many hard-money clients use it as a financing tool rather than equity. They use it to pull the trigger on a time-sensitive transaction that would be lost with traditional banking sources. |
Evaluating your Hard-Money Lender
Of course, rates, terms and fees are very important, that goes without saying. But remember these additional criteria:
How quickly can they look at a deal, and how fast and responsive are they at making and following through with a lending decision?
The broker should understand the borrowers' business, its basic goals and its competitive position. More specifically, the broker should demonstrate an excellent understanding of asset valuation, potential and exit strategy. Only then can the lender be guided to a decision that is beneficial for all.
Borrowers and brokers should foster long-term relationships that are grounded in open communication, prompt response, frank disclosure and mutual respect. This will bring peace of mind to the borrower in subsequent transactions.
Ultimately, borrowers seeking hard money financing need not accept less than outstanding service throughout the transaction.
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