Money has come to represent the best and worst of humanity throughout the years. While some insist that money is the root of all evil, I would instead suggest that the lack of money is the principle drive for evils. Regardless of moral standing, we can all agree that the way modern banks operate in a broken system that takes advantage of the financially burdened and those of low socio-economic status. Sometimes it is necessary to bypass the system.
The Modern American Financial Crisis
The American market went into a significant decline starting in early 2006 in what is now referred to as the bursting of the house market bubble. This started a nearly six year long recession that we are just now leaving behind. Along with the decline in property values, many banks saw government-aided bailouts in what the government assumed would help stabilize markets. Instead banks survived to continue taking advantage of the typical loan recipient. Most home buyers enter into a 15 or 30 year mortgage while they build equity; the median amount of home equity for people below the age of 35 totals at $20,000. Small business owners looking to take out a business loan must be in business for at least two years and have at least $250,000 in annual revenue to be considered; on top of this they must also have good personal and business credit and have positive cash flow — this makes it nearly impossible for newcomers to develop their business. Due to the current financial state of the nation, many people may wonder how does a hard money loan work and how is it different from other loan options.
The Difference of a Personal Loan
Private investors are also known as hard money lenders due to their simplified loan process that often bypasses the need for credit checks. The cost of a hard money loan is a risk-reward analysis that each business person should make. Hard money offers higher interest rates and lower loan to value ratios; a hard money interest rate can start at 15%, 18%, or even higher figures. Most hard money loans are secured by a property that has 30% to 50% equity, thus the investor remains well protected throughout the process. By and large, a hard money loan has a higher interest rate, shorter duration and more risks associated with it; these loans are suitable for projects lasting from a few months to up to five years unlike a normal loan that can be for up to 20 years.
So How Does a Hard Money Loan Work?
When asking the question, “how does a hard money loan work,” one should consider their options. Hard money originally developed as an alternative “last resort” for property owners seeking capital against their equity; it is essentially a last ditch effort to recoup one’s losses and come out of hardship quickly. Chances are there are a number of private investors looking to distribute hard money loans in your area as real estate investment figures are expected to experience a sharp rise over the coming years. Consider your options, do the research, and decide if a hard money loan is the right answer for your business in these trying times.