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An Essential Guide to Hard Money Lending

By G. David Lapin On May 16 2024

Hanover Mortgage Company in Tustin: An Essential Guide to Hard Money Lending

In a tight lending environment, banks may raise their standards and restrict lending to reduce risk. This can place entrepreneurs,real estate  investors, and small business owners in a difficult position.

Cash flow and unexpected expenses are some of the biggest challenges for growing businesses. Real estate investors facing a competitive property market need to act on potential investments without delay. When the time to fund and qualifications to finance are unreasonable through conventional lenders, hard money loans offer fast, flexible financing with competitive terms to commercial borrowers.

What Is Hard Money Lending?
Hard money lending is a type of financing that uses real estate to secure loans for business purposes. The primary uses for these types of loans are:

To facilitate the purchase or refinance of all types of real estate.
To act as bridge loans. In this capacity, the real estate collateral is effectively converted into cash for use in any legal business purpose, whether debt refinancing, working capital, or so on.
How Hard Money Lending Differs from Traditional Bank Loans
The application process for a traditional bank loan can be drawn out with long delays between approval and funding. Standards for financing terms and risk profiles can also make loans inaccessible to borrowers based on strict credit score thresholds. By comparison, hard money lending offers:

Flexible Financing Terms
Hard money loans are secured with real estate, allowing lenders to prioritize the value of collateral over more traditional criteria (although those criteria are still considered). This supports creative financing with more flexible repayment schedules, interest rates, and eligibility requirements for borrowers.

Asset-Based Risk Profiles
Underwriting for hard money loans is asset-based, with the value of collateral (real estate) enhancing the overall risk profile of the loan. Credit scores and business finances are secondary considerations but won’t restrict borrowers from financing.

Streamlined Application Processes
Applications are often much simpler, faster to complete, and faster to close with hard money lending. This is because they are funded privately and not by federally insured banking institutions.

Short-Term Loans
Financing a hard money loan will have a much shorter repayment schedule than a traditional 20- or 30-year mortgage. Depending on the business purpose, a brief funding period consistent with a quick turnaround can be beneficial, especially for investment properties. Interest rates will vary with each lender but may be higher than conventional real estate financing.

Advantages of Hard Money Loans
Businesses and real estate investors aren’t always in a position to wait for lengthy closing times or fit their financial standing to a conventional model. Hard money loans offer multiple advantages that make financing less challenging:

Faster Access to Capital
Applications are processed and closed without delay so you can fund your business interests in real time. This is essential to secure investment properties in a competitive market and keep business operations running without disruption when anticipated expenses come up.

Simple Qualification
Although hard money lending will review your credit score and business finances, the focus is on the real property positioned as collateral. This allows new borrowers and businesses with lackluster credit to qualify for loans when they would otherwise be turned away by a bank.

Broad Potential for Use
Unlike traditional small business loans, hard money loans can be used for many short-term business purposes and aren’t restricted by requirements of how proceeds may be spent.

Understanding Loan-to-Value Ratios
Loan-to-value (LTV) ratios represent the size of a loan in relation to the value of collateral. Hard Money Lending uses LTV ratios to determine how much funding you’re eligible to receive with asset-based financing.

LTV ratios are also used to assess the risk profile of a loan, so each lender will have their own standards. Although a conventional mortgage may have as much as a 90 percent LTV ratio, hard money loans will range between 50-75 percent. When applying for a loan, you can calculate the LTV by dividing the loan amount by the value of the property leveraged.

Hanover Mortgage Company offers Unmatched Expertise with years of arranging hard money loans in California. 
Whatever your financial goals may be, our team at Hanover Mortgage Company in Tustin has extensive experience in specialty private lending. If you’re considering a hard money loan, we understand the circumstances are time-sensitive and unique to your business.

Contact us today to talk about financing that works for you. (714)838-1474 


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Hanover Mortgage Company is California licensed only. Real Estate Broker – California Department of Real Estate. Broker License #01410448 │ NMLS I.D. Number: 337458. INTEREST RATES CAN CHANGE WITHOUT NOTICE. ASK US FOR CURRENT RATE INFORMATION. BORROWERS AND PROPERTIES MUST QUALIFY. CONDITIONS AND RESTRICTIONS MAY APPLY. Loan programs, amounts, rates and terms are subject to change without notice. Loan approval is not guaranteed and all loan applications are subject to verification of acceptable credit, income, employment, lien position and value of collateral in the sole discretion of Hanover Mortgage Company. Flood and/or property hazard insurance may be required. Additional fees, conditions, restrictions and limitations may apply. Not all programs are available in all areas. The interest rate for adjustable rate mortgage loans is subject to increase. Please contact Hanover Mortgage Company to determine your eligibility for a specific loan product. Hanover Mortgage Company does not offer financing for those transactions defined as ‘Covered Loans’ or ‘High Cost Loans’ in any state or federal law. Hanover Mortgage Company is a Mortgage Broker. Mortgage Broker fees will apply unless stated otherwise. Disclosure: Money invested through a mortgage broker is not guaranteed to earn any interest or return and is not insured. State law dictates that we acknowledge that interest on trust deeds is not guaranteed. No investment is completely risk free and past performance is not a guarantee of future results. Before investing, investors must be provided applicable disclosure documents. Investment Products: Are Not FDIC Insured • Are Not Bank Guaranteed • May Lose Value • Are Not a Deposit • Are Not Insured by Any Federal Government Agency.