Private lending is an alternative to conventional loans such as you would apply for at your local bank or Mortgage Company. They are also referred to as Hard Money loans. Private loans are short-term loans ranging from 3 months to 3 years. They have a quick approval time line and usually a 55% to 75% LTV (loan to value) rate. This is a great option for residential, commercial, construction, and land investment purchases that are expected to have a fast turn around.
There are a variety of Hard Money loans:
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-Hard Money Acquisition Loans - This type of loan is used to acquire real estate using the loan proceeds.
-Mezzanine Financing and Loan - This is a loan subordinate to a Primary Lender. This is a debt instrument, which is paid back at the time of sale or refinance of the total capital stack. Mezzanine loans have flexible structure, including debt and equity mixes that can increase the borrowers leverage.
-Hard Money Acquisition and Development Loan - These loans are used to acquire and develop property with the intention of improving it. The loan proceeds are dispersed with interest only paid on the funds Distributed. The loan amount is determined by the overall LTV Expected following the improvements.
-Asset-Based Hard Money Loan - This can be used for any purpose. Collateral is put up for security. Collateral may be property, equipment, inventory, etc.
-Hard Money Bridge Loan - This is money that is used for only a short period of time until permanent financing is put in place. This is a perfect solution for a business opportunity or acquisition that needs a quick process for financing. Circumstances that may be considered are Buy-Outs; foreclosures; construction; hotel and motel; office complexes; commercial business opportunity; apartment buildings and even golf courses.
-Hard Money Construction Loan - This money is used for the construction of a building or other improvements of real property. The land or the improvements become the collateral for the loan. Some lenders will loan up to 100% of the cost of construction available depending on the determined value upon the completion of all improvements.
-Hard Money Credit Enhancement Loan - This loan is for a borrower who lacks the credit or capacity to acquire a conventional loan of sorts.
-Hard Money Raw Land Loan - This can be used for lots to large acreage. The LTV ratios are determined by the price it would be valued at a 90 day quick sale.
The key to Hard Money loans is the ability to do a quick turnaround in your sale of the property purchased, or speed in which you are able to acquire a more permanent long term financing.
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