Commercial property owners have the capital requirements for various purposes such as purchase and renovation. In a perfect world, the property owner will seek conventional lenders such as banks and credit unions because they likely will offer the lowest cost money. Sometimes traditional financing is not available to the borrower or the borrower may not want to tie up with private funds to finance the project at hand.
In the world of loans, borrowers look to Private Lenders more to get private finances because of ease of access. On the surface, one might question why a borrower would be willing to pay a higher interest rate to Private Lenders (Hard Money Lender) and instead may choose not to continue their project through traditional financing.
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Some of the points why investors prefer hard money loans over traditional loans are as follows:
If repair or renovation is needed for the property, it will increase the value of the property as well. In this situation, the borrower may feel it more helpful to buy the property in a short duration by borrowing from a hard money lender.
When the borrower is interested in buying the property Hard money lending is an effective tool in the buying process. Attractive real estate opportunities and strategic property purchases are often time-sensitive. Traditional lenders are usually not able to provide financing quickly and thus often not a good alternative in this type of real estate deals. Hard money lenders that are agile and able to evaluate, approve and close loans faster should be given preference in such cases.