Can’t Get Bank Financing? Hard Money Vs. Private Money Lending

Let’s face it. The way money works in this country is a bit weird. Just because someone hit rock bottom one time, it becomes extremely difficult for them to get back up and start over. A dent in your credit history makes it virtually impossible to get a loan of any sort!

You may have come across this article because you’re in that same exact situation. If that’s the case, don’t worry! Because many others have been there as well, creative solutions have been made to go around this problem of not being able to get financing. Below, you’ll be learning about two types of loans – “hard money” and “private money” loans. Knowing what these two mean could bring you the solution you need, as well as potentially being able to help you make more money!

[Disclaimer: The information presented in this article isn’t financial advice. Doing the necessary research is still essential in making any business decision. If you need more help, you can always talk to your accountant or financial advisor to help you make the best decision based on your unique set of circumstances.]

Definition and Differences

Hard Money Loans

These loans are acquired through assets. What assets? We can use real estate as an example. Whatever the collateral is going to be, its value will be the basis for the rates and amount of the loan. It pretty much sounds like how banks do loans, and that’s because it literally is how most banks do it! But, hard money lenders are usually more lenient than banks. They might not reject you outright just because of “bad” credit behavior.

While they might not be as versatile as private money loans (discussed in the next section), they’re still more flexible than banks. They’re also generally licensed, giving you a sense of security more than private money lenders.

Private Money Loans

As the term suggests, private money loans come from “private” people. Usually, it’s from friends and family. But, as mentioned earlier, because many are looking for creative financing solutions, “angel investors” have come into existence. These treat private money lending as a business, where they would lend to strangers (with ample research and vetting, of course) so long as they get something on top of what they lent! The terms vary and are generally discussed between the borrower and lender. This makes it more flexible than hard money loans. In addition, you can get financing much faster with private money lenders than hard money lenders.

While it sounds like private money loans are better, there are drawbacks as well. They’re a bit of a mixed bag. If you’re getting money from those business private money loan lenders, they may have higher fees & rates and a shorter payment period. But even if you’re getting money from your best friend, there’s this “relational risk” involved when getting money from friends and family. That might not sound too bad, business-wise, but at the end of the day, we’re still human beings who value our relationships!

The Similarities

Both hard money and private money loans are accessible nowadays. In the internet age, it’s easy to Google “lenders near me,” and you’d probably find a few people here and there. As for private money, better connections made on social media with friends and family could get you the help you need – either you get it from them directly, or they might know someone!

While we’ve argued about flexibility and the time it takes for you to get funding, both are more flexible and efficient than traditional banking. There are fewer hoops to jump through, better terms, and a more “humanized” approach to seeing your credit rating.

Didn’t You Say, “A Business Opportunity”?

You heard that right – there is a business opportunity specifically with private money loans. Because of these angel investors, not only can you pay off debt, but you can finance your business ideas so that they come to life! Many real estate investors get help from private money lenders. Essentially, they borrow money for a good deal on a house, fix it, flip it, and share the profits with the investor! Sounds simple, right? Not only can you get out of a tough situation, but you can also find your success through it. Now you just need to find an angel in your area!

Which One Do You Choose? How Do You Choose?

It’s important to note that lending is evolving. These two kinds of loans are NOT the only solutions out there. While hard money or private money loans could work for you, there may be other types of financing strategies you could use to put yourself in a better position. And, who’s to say that the tried-and-true methods won’t work for you?

A word of advice: when looking for lenders, always double-check. Even if someone says they’re a hard money or a private money lender, try and compare with others in the same niche. Because of the innate flexibility with these two kinds of loans, you might be led to take a loan with bad terms compared with the others you could get in your area.

We’ve talked about loans here, but you could also sell your property for cash quickly through real estate investors like Shorefront Investments! We’re Florida-based real estate investors looking to buy and sell properties fast. You can give us a call at (850) 713-4866, send us an email, or fill a form on our front page! Want to buy properties instead? You could be one of our buyers by joining our buyers’ list!