Times are tough for a great number of people around the world, and as the months go by some are finding it more difficult than others to become financially stable once again. Many formal lenders will be weary of loaning money to those who have struggled to get out of debt or those who don’t have any steady prospects. This is where hard money lenders come in.
Soft and hard money
Each industry has its own jargon and when it comes to investing money is referred to as hard or soft. Hard money is the term referred to those loans that are fixed, restricted and difficult to apply for. In contrast, soft money allows for providers to give more flexible loans, so more people can apply for it. In a nutshell, hard money is those loans that hard money lenders make available.
Who are the hard money lenders?
Hard money generally comes from private sources or individuals and will not really be very popular at all with more commercial lenders. Because these loans are from private lenders they cannot afford to lend large sums of money to just anybody who needs a loan. Hard money is often very difficult to apply for and comes with more rules since they have to ensure they get their money back.
How does this work?
Hard money lenders tend to lend far less money than other lenders. When it comes to real estate, for example, they will lend up to or less than the amount that the house is worth. Should the house be repossessed and need to be sold then the resale amount would cover the hard loan and the lender would recoup their loan.
The legal downside
The law has started doing more for the consumer, especially when it comes to loans and paying them back. Hard money lenders have had to contend with such laws, and as a result have had to deal with financial loss because borrowers couldn’t pay back the loan. In light of this, you can understand how the loan conditions such as interest, late payment fees and loan periods. This ensures that the lenders reduce the risk of not getting the full amount back.