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The Role of Hard Money Lenders in Fueling Real Estate Development


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The concept of hard money dates back to the Great Depression in the United States. The collapse of the banking industry destroyed consumer confidence and caused widespread panic, so individuals began withdrawing money from bank accounts and keeping it at home, which ultimately led to a mass reduction in the amount of money in circulation.


This resulted in people finding they were unable to access additional cash when they needed it. Lenders sought a solution to help resolve this by offering loans that utilized real estate as collateral. Due to the risky nature of this type of loan, higher interest rates were charged, but with no other way to get quick cash, many borrowers had no alternative than to take out hard money loans.

Since then, we have seen hard money lending hit some highs and lows in terms of reputation. In the 1950s, for example, private short-term debt was vital to the world of real estate development. It became somewhat of a “last resort” option for commercial property owners who were looking for capital against the equity of their holdings.


By the 1990s, a major turn in the commercial real estate market resulted in an unprecedented number of banks experiencing considerable failures and massive losses. Due to this, private lenders became a widely popular alternative when it came to real estate financing.

This started the rise of hard money lending as private lending became very commonplace by 2010.


So, why did private lending suddenly develop a better reputation? It was largely due to real estate borrowers becoming increasingly frustrated with the Dodd-Frank Act and the hoops they had to jump through. Investors began looking for alternative lending solutions and quickly realized that the hard money lenders they had thought of as “back-alley operators” had become private lenders that were now a viable, respectable alternative. Private lenders developed a new reputation for being established, aboveboard providers of lending solutions.


Investors also discovered that private lending offers various perks that traditional banks cannot provide, such as better loan speed and execution, unique loan terms that include rehab costs, and the ability to provide more leverage.


We are living in an exciting time when the hard money industry is finally earning the respect it has long deserved. It has found its place in the mainstream and will only continue to grow and maintain its now-found positive reputation.


What do hard money loans mean for a borrower? Well, you would have to ask them. Here is what they said to me:


  • Hard money loans offer more accessibility for borrowers who may not qualify for traditional bank loans due to factors such as poor credit history or unconventional sources of income.

  • Hard money loans are typically processed much faster than traditional bank loans since hard money lenders focus less on a borrower’s creditworthiness and more on the value of the collateral. This speed allows borrowers to seize investment opportunities more rapidly.

  • Hard money lenders are often more flexible than traditional banks in terms of loan terms and repayment schedules. This flexibility can be advantageous for borrowers with specific needs or timelines for property acquisitions and renovations.

  • Hard money lenders typically charge higher interest rates than traditional bank loans. While this may disadvantage borrowers, it can be offset by the speed and accessibility of hard money loans.

  • Hard money lenders primarily assess the value of the collateral. This asset-based approach to lending provides an alternative financing option for borrowers who have valuable assets but may not meet traditional lenders' stringent requirements.


What do hard money loans mean to a community?


  • Hard money loans facilitate real estate investments by providing financing options for property acquisitions, development, and construction, which contribute to a community's growth.

  • Hard money loans support entrepreneurship by offering funding to small and midsize businesses that may not qualify for traditional bank loans. This access to capital has enabled entrepreneurs to pursue their business ideas, create jobs, and stimulate economic growth.

  • Hard money loans have helped expedite the development of critical infrastructure, enhancing the country’s overall economic competitiveness.

  • The availability of hard money loans has contributed to job creation across various sectors, including real estate, construction, and various small businesses.

  • Hard money loans foster innovation by providing funding to entrepreneurs and businesses pursuing unconventional ideas or ventures.


With almost $2 billion of loans funded by investors at Ignite Funding, I would say we have helped shape communities positively across the United States in developing infrastructure not funded by traditional banks.


Hard money loans do not have to be a “dirty” word, unless we are funding the acquisition of land, then things could get a little dirty.

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