In the commercial real estate business, time is not always on your side. There are situations when you simply need cash fast. When those situations come up property owners, developers and investors don't have time to work through the paperwork and bureaucracy that comes with getting a loan at the bank or from Wall Street. Conventional loans funded by large institutions can take 60-90 days to close. When time is truly of the essence commercial property professionals need quick decisions and fast closings. This is where hard money loans come into play.
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Mortgage loans issued by private individuals or privately owned firms are often called "hard money" The name comes from the fact that the loan is underwritten based on the value and the equity in the collateral real estate; a "hard" asset. Private lending is not driven by the credit or income of the borrower. Often borrower credit is not a factor at all.
Private commercial mortgage lenders are equity lenders.
Firms and individuals that make hard money loans are, by-and-large, unregulated and are free to make snap decisions and can close loans extremely fast. Usually only one or two people are responsible for lending decisions, there is no loan committee to slow things down. Hard money lenders have minimal documentation requirements; their main concern is determining the amount of equity in a property. Many private lenders do not even require an appraisal before they issue a loan approval.
It is not unheard of for a privately funded loan to close in 5 days even if the loan amount is in the millions. Realistically, most take 2-3 weeks from start to finish, but they have the ability to move as fast as the borrower needs to.
If you have a deal closing in days and your conventional financing isn't coming through for a month, or if you have a balloon payment due and no time for a conventional refinance, chances are good that a private hard money lender can come get you all the money you need, fast.
You'll pay higher rates and points with a hard money mortgage but, when all factors are considered you may find that private loans are well worth the extra cost.
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