When investors talk about money, it is considered to be “hard” or “soft”. Soft money is usually easier to obtain and qualify for, and in most cases the terms are flexible. Hard money is much more restrictive and comes from individuals who have a lot of money on hand. This is why hard money is sometimes called “private money.”

There are a number of different advantages when one decides to become a hard money lender. These types of lenders can take advantage of the fact that real estate loans from banks and brokerage firms are much harder to come by than they used to be. These lenders are less apt to lend money for real estate because the housing industry is in dire financial straits in the current economic climate.

People who use moneylenders generally have to be turned down by a bank and have a hard time finding financing elsewhere. While there is an increased risk that the borrower may default on their loan or untimely repay it, loans can still perform impressive overall.

The person who becomes a hard money lender focuses primarily on the merits of the real estate transaction and not on the borrower himself. This is good because the borrower may have low credit or higher risk for other reasons. The security lies in the fact that the lender will receive a title deed and have the same type of insurance on the property that banks have when they make loans.

Hard money loans are known for their quick payback. Loans are normally repaid within 8 months to 1 year or even earlier. They also stand out for closing very quickly, in most cases, within 24 hours.

The expenses involved when becoming a lender tend to be higher than with traditional loans. This is because they are not based on traditional credit guidelines. Traditional guidelines protect both banks and investors from a high incidence of default. The person deciding to become a hard money lender may not require the same types of income verification (or none at all) as traditional lenders. Therefore, they experience default rates that are considerably higher. As a result, they charge higher interest rates.

Companies and individuals have the option of taking out a private hard money loan on those occasions when they cannot obtain mortgage financing through traditional means. This can happen when they do not have acceptable credit or the large amount of documentation that a traditional financial institution generally requires.

The usury laws of New Jersey, Tennessee, and several other states prevent real money lenders from operating in the same way that they are allowed to operate in other states. Regulations on hard money loans tend to differ by state, as well as by state of whether or not the loan is made to a business or a consumer.