Hard money lending is a specific type of private lending designed to meet unique needs. As such, it is not as commonly utilized as most forms of traditional lending. Most consumers will never need access to hard money or a similar form of private lending known as the bridge loan.
If consumers are not typical hard money borrowers, who are the industry’s clients? Who does hard money actually help? For that, we turn to Actium Partners out of Salt Lake City, Utah. Actium Partners is a hard money lender that specializes mainly in real estate transactions.
Buyer #1: The Real Estate Investor
Nearly all of Actium’s clients are real estate investors. These are individuals or firms looking to acquire new properties they can add to their portfolios. Real estate investors can use hard money in a number of different ways.
In one scenario, you might have a borrower looking to buy a multi-unit rental complex. Rental revenue will provide the means of paying off the loan. In another scenario, a borrower might turn to hard money to acquire a piece of property, then arrange for a traditional mortgage from a bank. That mortgage pays off the hard money loan.
Buyer #2: The Real Estate Developer
Similar to real estate investors, property developers may turn to hard money to finance any part of their operations. Actium Partners rarely works with property developers, but there are plenty of other hard money lenders who specialize in this sort of thing. They offer money to acquire land, improve it, and so forth. Some even offer construction loans.
Borrower #3: Property Flippers
Residential and commercial flipping is another sector that Actium Partners does not involve itself with. But again, there are hard money lenders who specialize in flipping.
Some focus entirely on residential flippers. These are investors who buy individual homes, renovate them, and then put them back on the market. House flipping was big business back in the 1990s and early 2000s. Its popularity has waned somewhat, but it is still a good way to make money in real estate.
Commercial flippers do the same thing. They just concentrate on commercial properties rather than residential. Hard money does for them exactly what it does for residential flippers: it provides access to quick cash for purchasing and renovating.
Borrower #4: Residential and Commercial Landlords
This next category of borrower, landlords, is discussed separately from real estate investors for the simple fact that they often utilize hard money for things other than property acquisition. A good example would be using a hard money loan to pay off an existing debt instrument. During the loan’s 6-to-18-month term, the landlord can arrange for traditional financing to pay off what he has borrowed.
Borrower #5: Small Business Owners
Next up are small business owners. It is not uncommon for them to turn to hard money to fund expansion. Hard money gives them access to quick cash without having to jump through all the time-consuming hoops traditional lenders put up.
Borrower #6: Mid-Size and Large Companies
The biggest hard money deals are reserved for mid-size and large companies that turn to private lending to facilitate mergers and acquisitions. Again, this is something that Actium Partners is not involved with. The firms that tend to fund these sorts of transactions have access to tremendous financial resources.
Hard money and bridge loans are not instruments normally used by consumers. But for real estate investors, property flippers, and other types of commercial borrowers, hard money and bridge loans are indispensable. They are the lifeline of profitable business.
