So, you think you know hard money and bridge loans inside and out. Maybe you do. But if you have never actually applied for a hard money loan, you probably don’t know as much as you think you do. That is often the case with first-time borrowers who are shocked at how different the process is. Getting a hard money loan is a lot different than getting traditional financing.
The differences between hard money and traditional funding are both profound and systemic. Rather than go through all those differences here, we will focus on the number one thing that shocks most first-time hard money borrowers.
Here it is – the speed at which hard money lenders work.
It Doesn’t Take Months
Actium Partners, a Salt Lake City, Utah hard money lender that specializes in real estate transactions, says most hard money and bridge loans go to real estate investors who need to get deals done quickly. Here’s the thing: if you’ve ever applied for a traditional mortgage, you know just how long it takes to get things done. The same is true for financing commercial real estate through traditional loans.
A traditional lender can easily take months to complete its work. You could apply for a loan on April 1st and still be sending the bank documents a week before closing at the end of June. It is amazing. But this is normal for traditional financing. So much so that, despite our collective frustrations with the system, we just accept it.
A borrower’s first experience with a hard money lender is so much faster that it can be overwhelming. How quickly can hard money lenders move? Pretty darned quickly. Though each case is unique, it certainly doesn’t take hard money lenders two to three months to approve and fund.
Days, If Not Hours
It is not possible to say that all hard money loans would close within a certain time frame. Again, every loan is different. But the general rule is that hard money lenders are ready to close within days. Imagine applying for a hard money or bridge loan on Monday and closing the deal on Wednesday or Thursday. This sort of thing is actually fairly common in private lending.
There have been cases in which Actium Partners was able to get deals done in under 24 hours. That is obviously not the norm, but when circumstances dictate, it’s certainly possible. For that reason alone, real estate investors tend to make hard money their first funding option rather than an option of last resort.
How They Do It
The obvious question at this point is how hard money lenders work so quickly. Their ability to bring speed to the equation rests almost entirely on their business model. Given that hard money lenders are private lenders rather than banks, they don’t have to follow the same rules for paperwork and verifying creditworthiness. So right off the bat, their paperwork requirements are substantially less stringent. A typical applicant can furnish all the necessary documents with the initial application.
More important is the fact that hard money lending is based on assets. Rather than looking at the borrower’s financial history, credit report, etc., lenders look at the value of the asset being obtained. That asset acts as collateral to secure the loan. This means that approval can often be given as soon as an appraisal is completed.
First-time hard money borrowers are often shocked by how different the process is. The thing that shocks them most is the speed at which hard money lenders work. Needless to say that it’s fast.