Sometimes it can definitely feel like it's “Hard to Get Money,” that's for sure. With all of the inconsistency in the private money industry, sometimes it's hard for brokers to tell the difference between a good loan and a bad loan, and which files are worth spending time on and which ones aren't. So naturally we were intrigued when we saw that someone had written an article describing why even private money is tougher to get a hold of these days. The article is from the July 2010 issue of The Niche Report and it's titled:
Is It “Hard Money” or is it “Hard to Get Money?” As it turns out, the article is more of a primer on a multitude of different facets of private money lending and gives readers a basic overview of the ins and outs of who private money lenders are. Although the article didn't drive home the point that we were hoping that it would, there are still some interesting takeaways from this in-depth analysis of the functions of a private money lender and what they can offer your clients.
Let's examine some of the highlights in detail – Who are these Hard Money Lenders? We're flattered that the author believes that we're all well-educated and savvy. Unfortunately that's not the case for all private lenders. It's also not the case that every “entrepreneur lender” is earning handsome returns on their loans. The fact of the matter is, almost anyone can be a hard money lender and the range of experience from lender to lender can scale the spectrum from novice to expert. The author definitely got one thing right though: hard money is here to stay and it's going to become more of a practical solution for more and more borrowers as time goes on.
Hard Money Lending Philosophy The author has picked out a lot of truths about the hard money lending process. To some degree “gut feel” is a part of our lending philosophy, but that comes from having years of experience and knowing a good deal when you see one. It's also true that we're not “underwriting engines” like banks' computers are – we do operating with a degree of subjectivity and the borrower's character and experience can definitely play a role in the approval process. While hard money lenders don't just make loans to borrowers that they like, lenders can definitely be deterred from making a loan if the borrower doesn't show substantial business acumen or they lack the ability to develop a solid plan. The one area that we disagree with the author's take on philosophy is in that of personal control. Borrowers aren't necessarily at the mercy of hard money lenders at the moment, especially because of the need for disclosure and transparency within the industry. Fraud and scandal have pushed the “play it close to the vest” lenders out of the industry and there's a new type of private lender entering the game that can survive in an arena where everyone demands to be able to see them for what they are.
What Properties Qualify for Hard Money All properties qualify for hard money because a private lender can lend money to whoever they wish so long as they follow licensing and regulatory guidelines. However, it's true that investment property makes up the largest portion of properties that are utilized to secured private loans. The reason is simply because there are very few owner-occupied scenarios that actually make sense in the private lending world.
Hard Money Application Requirements Unfortunately it's nearly impossible to generalize what's required to apply for a hard money loan because almost every single private lender will require a different quantity and quality of material on your initial request for a loan. This is the area that private lenders are consistently inconsistent, which is why we decided to make applying for an MMG Capital Loan as simple as possible. Borrowers and brokers can save themselves time by submitting a simple summary and some basic financial information. MMG can usually tell whether the scenario is worth pursuing or not just from a quick glance.
Another good message sent by the author is to beware of traps that exist for those that are searching for hard money loans. There are more than a few brokers out there posing as lenders that are simply trying to get control of as many deals as they can. If your loan request gets circulated to one of these individuals it could cause trouble for you in more than a few ways. There is a lot of debate over whether the business practice of brokers posing as lenders is ethical or even legal Many of these so-called brokers are simply trying to collect fees from unsuspecting borrowers and never have any intention of funding loans. This is part of the reason why the private money industry requires an added level of disclosure and transparency nowadays.
Chris Gleason is the Managing Director of MMG Capital, a nationwide, private lender and secured investment opportunity provider.