What Are Hard Money Loans ?

A hard money loan is a type of asset-based loan. An asset-based loan is a loan secured by tangible collateral such as property, accounts receivable or real estate. An asset-based loan may be suited to you if you need money fast or require a larger than normal loan. It is also suited to people with poor credit.

What Are Hard Money Loans

A hard money loan is an asset-based loan secured by the value of a piece of real estate. Hard money loans are commonly obtained by a small business or individual either for short-term cash needs, such as staving off foreclosure, or for a project that is otherwise difficult to finance because the borrower has an imperfect credit history. Institutions approving hard money loans pay more attention to the appraised value of the collateral - the piece of real estate - than to the borrower's credit score. Unlike a bank loan, a candidate for a hard money loan can have a credit score lower than 500.

In the past, a hard money loan was considered riskier than a conventional loan. As a result, the loan to value rate (LTV) of a hard money loan was lower than that of a traditional loan and the interest rate was higher. This can still be true today, but in many instances the interest rates on hard money loans have dropped. Furthermore, in the past there was a stigma associated with pledging your assets in exchange for cash. But today hard money loans are how many small businesses are able to finance growth.  

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