What is a Hard Money Loan?

[Don Konipol]

What is a "hard money" loan? Conventional lenders utilize what has become know as the "5 Cs" in determining whether to make a loan. Credit History, Capital, Capacity, Collateral, and Conditions. Any one of the "Cs" found lacking can be overcome - EXCEPT the Credit History of the borrower.

A TRUE Hard Money Lender eliminates Credit History from the equation, and emphasizes Collateral. If a hard money lender feels that the collateral is sufficient to provide a margin of safety, and the property will produce sufficient cash flow to service the debt, then the hard money lender will approve the loan, even if the borrower has a dismal credit history or credit score. In fact, with sufficient collateral, the hard money lender may approve the loan even without the cash flow to make loan payments, IF the borrower has a believable strategy (sale of the property, take out loan, etc.) to repay the loan.