Hard lending is a unique type of private lending that brings together investors and borrowers to meet a variety of needs. Hard money lenders come in all sizes and a serve different industries based on their areas of focus. A good example is Actium Partners out of Salt Lake City, Utah. Actium specializes in property investments throughout Utah and elsewhere.
Hard money is largely misunderstood because of all of the misinformation found online. In simple terms, most people do not understand what hard money is used for or how it is structured. Needless to say, it is completely separate from traditional bank financing.
According to Actium Partners, here are three common uses for hard money and bridge loans:
Property Investing
Property investors tend to borrow to finance new projects rather than paying cash. Borrowing is a way to grow and develop a portfolio without tying up valuable cash. Hard money is a preferred financing tool because of its speed and flexibility. Hard money lenders can more quickly and more easily meet borrower needs without forcing borrowers to jump through hoops.
A common scenario would involve an investor going to a lender to obtain enough money to acquire a prized property. Let us say the property is a multi-family apartment complex. The borrower can get a loan within a matter of days, allowing him to close on the deal before another investor snaps up the property.
With property in hand and rental income being generated, the investor can then turn around and get a traditional business loan to pay off the hard money loan. Then it’s off to the next project and the process repeats.
Business Expansion
A second typical use for hard money and bridge loans is business expansion. This can mean different things to different people. As an example, consider a successful business choosing to open a second location on the other side of town. The business owner doesn’t want to rent a building. Instead, he wants to purchase a building already set up to meet the company’s needs. A hard money loan can help him acquire that property.
The business owner uses the property as collateral on the loan. He gets the new location up and running, and then applies for traditional financing. With the new loan, he pays off the hard money loan and that’s that.
There are occasions when a business owner wants to expand without buying property. In such a case, he would use existing property or business assets as collateral. It is up to the lender to decide what is acceptable collateral and what is not.
Mergers and Acquisitions
Property investing and business expansion generally involve loan limits of $1 million or less. However, high-powered hard money lending firms can finance deals worth tens of millions of dollars. When they do, it is generally related to a merger or acquisition. Some of the biggest hard money deals in history involve these types of transactions.
Hard money is ideal for mergers and acquisitions due to its flexibility. Understandably, lenders capable of financing such large deals are not a dime a dozen. Most hard money lenders do not touch mergers and acquisitions. But for those who do, the transactions represent opportunities to earn impressive returns.
Truth be told, hard money lenders can lend for any purpose they choose. Most are very picky about their areas of specialty. Likewise, most do not get involved in residential mortgages. Hard money is reserved for investing and commercial projects. That’s where lenders make their money. Whether it is a hard money or bridge loan, lenders do very well.
