Hard money commercial loans traditionally referred to quick close loans with high interest rates, from private and unregulated lenders, sometimes even being referred to as loan sharks.
Since the credit crunch in 2007, hard money lending has taken on a new light in many instances. Whereas banks and other traditional providers of credit and commercial real estate mortgages stopped lending to a large extent, hard money lenders have flourished. Since 2008, it has been a renaissance for hard money lenders. They have less competition for lower interest rate lenders, and there is more demand for their capital as borrowers have less alternatives to obtain financing.
A strong commercial mortgage broker such as Financial Compound will oftentimes have a solid track record with a handful of favorite hard money lenders. For example, Financial Compound has closed transactions as quickly as 3 business days with some of its closely held hard money lenders.
While lenders and loan volumes are down, hard money lending activity is up. So much that the hard money lenders compete fiercely against one another. Financial Compound has coined a type of hard money lender, that we call soft money lenders. These are hard money lenders with lower interest rates, although still higher than the banks and other larger financial institutions.
Often hard money lenders have minimal closing costs, which can help offset their high fees which borrowers complain about. Your commercial mortgage broker should be able to negotiate market rate terms and keep lender points to a minimum. It is also advisable to research the hard money lenders as there are numerous scams and shady operations that charge the borrowers large up-front good faith deposits and then turn out not to be actual lenders, or barely lenders at all.