Reasons Private Lenders Finance Loans Banks Can’t Approve

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 issues 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 to, they can step in and rescue the situation by focusing on the value of the property so as to overcome any unexpected complications and approve the loan.

The main reason hard money lenders do this is because the underwriting process they work with focuses more on the property’s value. Their loan-to-value rates are also lower compared to the rates 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 the borrowers who cannot get the traditional lender’s approval as a result of credit problems or past mistakes, these loans can also be beneficial to borrowers who do not have obvious credit mishaps. For instance, a borrower may have a great credit history but the history 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 have sufficient income. Private capital lenders are always happy to finance this kind of a borrower as long as the borrower has invested in the property and the value of the asset 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 that may arise because of 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.