Hard Money Lender
Welcome to the world of the hard money lender where big money, big profits and ruthless adherence to the rules of the game are king. This is a place where hope dwells supreme that someone will get into a financial corner and can't get out without Superman's aid. This is a place where "It's not personal, it's just business" is uttered often and sincerely. It is a world where a reputation for bailing out people has been earned over time and where even banks and credit unions will refer the hard cash provider to business people and investors looking for quick money to make a deal fly. It's a sphere where this private lender might be so revered in the area in which he lives that a yearly convertible ride in the annual town parade is a correct assumption.
In most cases, the hard money lender steps into local situations and plays Superman. Take the case of the local grocer who has been there forever, but is slowly being drained dry by the new discount store out at the edge of town. Our hero knows the grocer personally and still shops there himself and so when the grocer comes to him for an infusion of cash to remodel the store into more of a modern market feel, the lender is ready to open his wallet. However...there are some big time requirements due to the circumstances; and by the way, there are always circumstances with a private cash investor. The grocer goes to the hero because his business credit is not good and he knows the bank will tell him, "It's not personal, it's just business" and show him to the door. The hero knows that and inwardly smiles. He is definitely in the driver's seat.
A hard money lender will rarely ever finance more than seventy percent of the needed cash for any project. The thirty percent yet needed must be provided by the one making the loan request in order to provide some security for the high risk transaction. The private loan provider will lend the grocer seventy percent of the four hundred thousand dollar request for eighteen months at twenty three percent and four points, all based on the grocer putting his building up for collateral. But that's not all. The grocer must agree to put up at least half of the remaining money needed through a lien on his personal home. These private lenders attempt to make each deal as secure as possible for themselves, and since the money is coming from a private source, the restrictions banks have on them from governmental edicts are not applicable to these lending agreements. Don't misunderstand; these private cash providers are, for the most part honest, but they are ruthless in what they demand.
Any place where a financial deal can be secured by high value property is of interest to the hard money lender. For instance, if a prime piece of land suddenly becomes available and a developer wants to snatch it up before it is sold elsewhere, an investor like our Superman is the man to call for two reasons. First, one of the reasons local businessmen become these types of lenders is because they have intimate knowledge of the area in which they live, including businesses and real estate. In this case, if a private lender knows the land that has just come up for sale and sees the value in it, the likelihood of getting his help has just risen dramatically. Secondly, the developer wants this guy's help because instead of waiting thirty to sixty days for the cash, the hard money lender can have the money in a couple of days and the land will still be there for purchase.
A hard money lender can help a construction company owner who wants to buy a rundown strip mall and completely restore it to thoroughly modern standards. The lender knows exactly where this mall is located and sees the possibilities and potentials in that plan. But sometimes a different investment opportunity comes along and the cash provider will see merit in it also. If an entrepreneur has sights set on starting a trucking company with ten new eighteen wheeler rigs, a Superman might find this deal intriguing, particularly if he knows the requester's background and family life and believes in his abilities. Without having those nagging requirements banks have for lending, the private provider of cash can go on gut instinct if so desired. In this case the new rigs would be the collateral but in every case the music is the same. From the grocer to the entrepreneur, the hard money lender will demand high interest, limited loan life, a large amount of points, a seventy percent ceiling on the total desired lending amount and if at all possible, the borrower must provide private equity as part of the agreement.
A hard money lender can be found in many towns and most cities across the country. They will be both men and women who probably have high profile executive jobs and who definitely do not put out advertising proclaiming their cash investing services. In small towns the lenders probably will be known as wealthy and people will know of their lending practices. But they will be people to whom banks will refer customers when the bank cannot help. In most cases, they will be respected and trusted, but in a former president's words, "trust but verify" is a totally appropriate adage. Jesus reminds us that a person's life will not be judged on wealth but on our soul's relationship with Him. "For what shall it profit a man if he shall gain the whole world but lose his own soul?" (Mark 8:36)
Personal Money LenderA personal money lender can be from one's own family or from banks that offer unsecured loans with high interest rates. Lenders that offer unsecured high interest loans also advertise cash advances, and payday loans. A personal money lender is often used by those who can not get approved through other financial institutions because of bad credit. To avoid having to pay such high interest for borrowed funds a person should consider living on a budget, paying all debts on time, and looking over his or her credit report for any possible errors that could affect scores. "The rich ruleth over the poor, and the borrower is servant to the lender" (Proverbs 22:7).
A consumer who just needs some extra cash because of a tight financial situation should try asking a family member for a loan before looking for a personal money lender. Normally family members and even friends do not charge another family member interest. When borrowing funds from family and friends the borrower should always pay back the money as soon as possible or as agreed because not doing so might mean that future borrowing may have to come from some other place. Of course it would be best not to borrow at all but sometimes it can be necessary. Everyone has unforeseen circumstances that happen which require extra cash now and again. A wise person will open a savings account to help in these types of situations.
Banks and other financial institutions that advertise cash advances often do so with a few restrictions. A borrower may need to have a checking account and a steady income coming in before they can qualify. A personal money lender will normally set up a way to provide them some security in getting their money back. To pay back cash advances a bank will auto draft the cash advance into the borrower's checking account. When payments are due then an auto draft is sent to the lender's bank each month until the funds are paid back. Oftentimes banks set up a borrower to have reoccurring cash advances as long as they receive payments on time every month. The drawback to getting cash advances is the fees and the high interest rates involved.
Payday loans work the same way as cash advances and they too have high interest and fees associated with them. A personal money lender can justify the high interest rates and fees because the loan is unsecured. In other words, there is no collateral in case of default by the borrower so the bank raises interest and charges fees for compensation in case of default. A borrower should shop around when he or she is in a pickle for some cash before taking out the type of loan that will cost an outrageous amount or figure out a way to put up some collateral such as property, jewelry, or an automobile. Putting up collateral could cause the bank to lower the interest rate because the risk of loss is less if the borrower defaults.
Personal loans are also known as signature loans. Signature loans have high interest rates just like cash advances and payday loans because the bank lending the money considers their risk of being paid back to be high. A personal money lender is used more often by consumers with bad credit than by ones who have good credit. People with good credit will be able to get lower interest rates when borrowing funds because they are seen by banks as less risky. A borrower with good credit is probably someone who watches his or her spending and lives on a budget. Having bad credit is not a sentence that has to be carried for one's entire life. There are ways to change by becoming more responsible and doing some self credit repair that can help to raise credit scores so the chances of getting a low interest personal loan are higher.
Some lenders that offer personal loans do not check a borrower's credit and do not base interest rates on credit scores. They charge the same interest rate to everyone who borrows. With this type of situation a personal money lender knows they can make some money off of people who are in a bad situation and need help. Lending institutions that do business with these types of tactics should be checked into carefully by the person who is looking to borrow from them. A borrower should make sure they are legitimate and have not been turned in to the Better Business Bureau. Really it is best to do business with someone who has been referred by a friend or family member than to just blindly choose someone you know nothing about.
There are many reasons why a person would be willing to pay very high interest rates and high fees to borrow some cash. Maybe the person does not have health insurance and needs to go to the doctor or has a sick child who needs to go to the doctor. The weather may be very cold and the heat is about to be turned off because the potential borrower could not pay the heating bill. Every person gets down with a problem now and again that requires asking for help. The main thing to remember when taking out a loan with a personal money lender is to not make it a habit. Instead find a way to budget money and live carefully so that there will not be a need for borrowing in the future.