There are certain financial services products that consistently, and undeservedly, get a bad rap. Hard money is one of them. Far too many so-called experts speak poorly of hard money as though it is always bad, for every borrower and every circumstance. Few things in financial services are that black-and-white.
Hard money has proved a valuable financial tool for generations. If it were not for hard money, some of the greatest deals of all time would never have taken place. So to dismiss hard money without ever considering its merits is foolishness. Anyone who does so is cutting off his nose to spite his face.
If you are curious about hard money lending, do some research. Learn what it really is and how it works. You might discover that it is a tool you can use to reach your financial goals. In the meantime, here are three reasons dismissing hard money is foolish:
1. Banks Can’t Meet Every Need
There is no denying that retail, commercial, and investment banks dominate the global financial sector. Yet banks are not the be-all and end-all of financial services. In fact, they simply can’t meet every financial need. That is why private lending exists on the scale it does.
Your typical hard money borrower has a particular need that a bank cannot meet. Hard money borrowers are not necessarily people who go looking for hard money because they do not qualify for a standard bank loan. According to Actium Partners in Salt Lake City, Utah, the opposite is actually true. Clients come to them looking for hard money because banks cannot accommodate their complex needs.
Banks are simply not set up to fund certain kinds of real estate acquisitions. They are not equipped to handle complicated real estate development projects. They do not have the resources to take on the risk of business expansion. On the other hand, hard money lenders can do what banks cannot.
2. Hard Money Loans Can Be Cheaper
One of the chief criticisms of hard money is the comparatively high interest rates loans are subject to. But looking at interest strictly as a percentage of the principal doesn’t tell the whole story. As a case in point, consider a $100k hard money loan at a rate of 20% for 12 months. The lender’s interest rate is certainly higher than the current bank rate.
Now imagine a bank loan at a rate of 10% for 60 months. If the borrower takes the loan to term, he will end up paying more than $27,000 in interest. Meanwhile, he will only pay $20,000 interest if he takes the hard money loan and pays it off on its due date.
Yes, hard money loans can be cheaper. It is not just about annual percentage. The total amount of interest paid is a combination of rate and term.
3. Hard Money is More Flexible
Finally, it’s foolish to dismiss hard money out of hand knowing that private lenders are more flexible. Try going to a bank and negotiating interest rates and repayment terms with a loan officer. You won’t get the time of day; banks just don’t negotiate. Hard money lenders can, and do.
Hard money loans are often customized to borrower needs. Private lenders tend to be more willing to work with borrowers to create a deal everyone can be happy with. You don’t get that kind of service from a bank.
It is true that hard money loans are not always the best option. But hard money is still worth considering. Simply dismissing it as a bad deal all the way around is foolish.