Reasons Private Lenders Finance Loans Banks Can’t Approve

In sum, private capital lenders have the ability to assist borrowers out of tight lending spots as long as the borrower is upfront about the problems that affect the arrangement and can show that the property’s value will secure the loan.

last updated Friday, April 11, 2025
#Hard money loans #Private lenders

by John Burson

Why Private Lenders Finance Loans Bank Lenders Are Afraid to Approve

QUICK LINKS

AD
Get access to Hard Money Capital by Asset types2

Borrowers often get into trouble when unforeseen problems arise (such as having a property that has zoning issues, a lingering lien, or pending bankruptcy) as they apply for a loan from traditional lenders. If such problems arise, lenders like credit unions and banks walk away, leaving the borrower high and dry. Fortunately, this is where private capital and hard money lenders come in. When asked, they can rescue the situation by focusing on the property's value to overcome unexpected complications and approve the loan.

Hard money lenders mainly do this because their underwriting process focuses more on the property's value. Their loan-to-value rates are also lower than those offered by traditional lenders. Usually, their rates range between 50-65 percent depending on the current state of the property -whether it has been developed or not.

Who Qualifies for Hard Money Loans?

Even though commercial hard money loans are seen as the last option for borrowers who cannot get the traditional lender's approval due to credit problems or past mistakes, these loans can also benefit borrowers who do not have obvious credit mishaps. For instance, a borrower may have an excellent credit history, but the past isn't so much, or they get their income from a pension or are self-employed but cannot meet the strict standards set by the bank to prove that they have sufficient income. Private capital lenders are always happy to finance this kind of borrower if the borrower has invested in the property and the asset's value supports it.

Hard money lenders value honesty just like bank lenders. They want to know all the details on how the borrower intends to use the money and any issues arising from the project. Due to their experience in dealing with difficult situations that conventional lenders can't handle, private lenders can use their expertise to deal with such issues, and the project can continue as envisioned by the borrower.