Hard Money Loans have long been the standard financing for real estate investors and businesspersons to acquire quick short term project funding. Even though this type of financing is expensive in terms of interest rates when compared to conventional financing, the terms and speed of the transaction made it viable for quick turnaround situations such as “flipping” properties or purchasing raw materials.

There have been two important changes to the accessibility of hard money loans since the economic crash of 2008. One change is the tightening of credit restrictions by all kinds of lenders, on the borrower. In the past some real estate investors who were seeking hard money would often have had a recent bankruptcy or had received a Notice of Default and were still able to acquire the necessary financing. If this is your situation now, the prospect of acquiring the financing is considerably less.

The other change is a reduction in loan-to-value (LTV). Many lenders were comfortable with LTV in the 70 -75% range and going to 80% on especially lucrative deals. Most lenders have gone back to a more conservative 60 – 65% LTV.

The Dilemma Faced By Hard Money Lenders

Hard money lenders face the same challenges that convention lenders are facing as the commercial and residential markets adjust to a different economy over the next few years. One of these challenges is property appraisal. As properties values adjust, how can the lender be sure that the property will be worth 5 years from now what it is today?

What Does This Mean For You, The Loan Seeker?

You must be aware of the changes in the market and the increased caution with which lenders will proceed in the foreseeable future. You must present a well thought out and well written loan proposal along with a financial statement and monetary commitment that shows you are a serious businessperson. Forget about asking for 100% financing unless the lender is a very close and beloved relative!