ABOUT HARD MONEY LOANS AND HARD MONEY LENDERS

What is a "hard money loan" and who are "hard money lenders"?

The real funds a hard money loan provides (as opposed to soft money) are not the reason hard money loans carry that name. It is because a hard money lender will approve the hard money loan based on the value of the borrower's assets and equity: the size of the loan relative to the value (LTV).

In residential housing, hard money loans are often used by homeowners who are in financial distress, delinquent in mortgage payments and perhaps facing foreclosure. They can give the borrower time to work out the problem.

In commercial lending (loans to companies), particularly in real estate funding, hard money lenders and hard money loans help builders and investors respond to opportunities and accomplish their goals. Real estate investors and builders often obtain hard money loans to help fund the acquisition of raw land, residential development, apartment renovation and condominium conversion.

Hard money lenders can be more accommodating than conventional lenders and bankers because they are private lenders capable of making faster decisions. These lenders of hard money are prepared to take on higher risk. Hard money lenders may also be subject to fewer regulatory restrictions than traditional banks. Often hard money loans are not "bankable" in the sense that a traditional lending institution could not adequately respond to the builder or investor's need for short-term capital. Typically they are short term (three years or shorter) and may have no penalties for pre-payment.

The hard money lender will require that the investor's or builder's project make good financial sense and that borrowers have enough collateral to guarantee the loan's repayment. When a real estate investment possibility might be lost if traditional financing was pursued, hard money lenders can move quickly to provide the funding needed to close.

Investors who borrow hard money understand that this type of loan is more expensive than conventional loans. A hard money borrower perceives that the loan's value extends beyond its cost. Confident of a deal's value, these investors have concluded that it makes sense to "pay the freight" up front and buy the asset."

Some hard money lenders are direct lenders. Others don't directly fund the loans they make. They rely on funding sources which may require more time to approve the loan or even reject the loan.

Gala Resources makes hard money loans to investors, builders and dealers. We are a direct lender. Our loans have no prepayment penalty.