Working with a hard money lender is often described as a loan of last resort. While this may be truth for homeowners, there are many situations in which hard money loans should be given immediate priority over conventional loans. Numerous factors such as the speed of the loan and the type of collateral that these loans tend to indicate make a big difference and, in the following cases, make them highly preferable to any other kind of loan.
Lending For Commercial Real Estate Development
If a real estate developer has invested a huge amount of money into a project, only to see (often unavoidable and unforeseeable) delays stretch out the time it takes before the project becomes profitable, it could be necessary to take out a hard money loan in the form of a bridge loan. This kind of loan is designed to keep the developer surviving and the property developing until it is ready to start producing profit.
In this case, the main advantage that the hard money lender provides is the fact that it happens quickly. A traditional loan would take 4-6 weeks to clear with the bank, by which time the developer may already have been forced to default and lose the property in question.
Lending For Rehab Investors
An investor who specializes in taking run-down, uninhabited homes and fixing them up for re-entrance on the market may find that hard money is the only type of loan that he or she qualifies for. Banks will generally run away from these loans because they cannot find any indication that the project itself will turn out to profitable without tenants already living on the property, and do not want to take the risk.
On the other hand, the loan is an excellent choice for this alternate type of lender, because it places the property as the only collateral of value, and thus represents very little risk. A hard money lender would generally be more than happy to help an investor rehabilitate a ruined or abandoned home for this reason.