Hard money lending is often lauded for its speed. You can make the case that it moves at the speed of modern business – particularly the business of real estate investing. If you don’t know why that matters, trust me that it does. I will explain it all in this post.
There are two things to establish from the get-go:
- Lender Status – Hard money lenders are private lenders licensed by the states in which they do business. They are not banks, credit unions, or mortgage brokers.
- Borrower Status – Although hard money lenders can lend to whomever they choose, the vast majority of borrowers are real estate investors. They rely on hard money to close deals quickly and aggressively.
The relationship between a hard money lender and borrower is somewhat unique. They are almost business partners in a sense, involved in a transaction where both are expecting strong returns. They both depend on one another to succeed.
Why Hard Money Is Fast
Hard money is often referred to as ‘fast money’. Lenders can move at the speed of modern business because their approval and underwriting processes are highly streamlined. In a nutshell:
- Lenders base approval on asset value.
- Approvals can be granted in hours.
- Lenders have minimal documentation requirements.
- Lenders don’t need to look into every detail of a borrower’s finances.
Because hard money lending is asset-based, lenders do not have to make every effort to understand a borrower’s ability to repay. They do not have to go through all the steps banks have to follow. That makes underwriting faster, easier, and more efficient.
Lending for a Highly Competitive Industry
All of this brings us to the question of why speed matters. The simplest way to understand it is to recognize that real estate investing is a highly competitive industry. The most lucrative properties are not on the market for very long. Aggressive competition among investors sees to that.
In any highly competitive industry, competitors need an edge. Speed is often that edge in real estate investing. The investor capable of arranging financing the quickest stands the greatest chances of winning the deal. That’s the way it goes.
If I am a property investor, I don’t want to wait 2-3 months for a bank to approve and underwrite my loan. I want a hard money firm like Salt Lake City, Utah’s Actium Partners, a firm that has been known to arrange and fund loans in as little as one business day.
A Perfect Example
A project Actium funded a couple of years ago provides the perfect example of why speed matters in real estate investing. The loan was requested by an investor who had arranged traditional financing only to have his bank back out of the deal on a Friday morning. Closing was scheduled for the following Monday.
The investor was in danger of losing the deal if he could not get to closing on time. No worries for the seller; there were other buyers waiting in the wings. Fortunately, Actium got the call mid-morning, approved a hard money loan that afternoon, and forwarded both documentation and funding to the title company on Monday. Their speed saved the deal and the day.
Keep Up or Be Left Behind
The business of real estate investing moves quickly. Investors need lending tools capable of moving at the same speed. If they cannot keep up, they are left behind. That’s not good for the simple fact that investing successfully is a matter of closing lucrative deals with every opportunity. Without hard money to work with, many investors would fail.