Apply for a hard money loan and the chances are pretty good you’ll have a legitimate approval within a day or two. Another day or two after that your loan will be funded. In essence, you can get a hard money loan in under a week in most cases. Banks don’t work that fast. They cannot.
So, what’s the deal? Why are hard money lenders so much faster? It is all in the way they do business. Their businesses are structured in such a way that they do not have to go through all same steps banks follow. Their approval process is much more efficient and, once approved, a loan can be funded as quickly as funds can be electronically transferred.
Actium Partners is a Salt Lake City firm that provides hard money and bridge loans to clients throughout the local area and the entire state of Utah. They say there are three reasons hard money lenders tend to work faster than banks:
1. Lending Structure
The number one reason is how hard money loans are structured. Hard money lending is asset-based. What does this mean? It means that lenders make approval or denial decisions based on the strength of an asset being offered as collateral. If a borrower has strong collateral, their loan is likely to be approved.
On the other hand, banks rely less on assets and more on a borrower’s credit history and current financial situation. Their structure is such that they have to spend a lot of time looking at data. They must check credit reports and histories. They have to verify income. It all takes time.
A hard money lender can send a representative to appraise collateral on the same day a loan application is received. As long as the appraisal demonstrates a high enough value, that’s it. There isn’t any additional paperwork to process or data to collect.
2. Back-and-Forth Eliminated
Anyone who has ever tried to get a mortgage knows there is a constant back-and-forth between lender and borrower. The loan officer needs certain documents. After the loan is passed on to the underwriter, they need more documents. In every step of the process, someone needs more documentation. It is time-consuming and frustrating.
This back-and-forth is eliminated in the hard money process. First of all, documentation requirements are comparatively fewer. Second, borrowers know up front what documents they will need to provide. They provide them once and that’s it. There aren’t multiple people processing the loan and all looking for their own copies of the same documents.
3. Funding Can Be Immediate
Finally, funding can be immediately available as soon as a loan is approved. Just as an example, Actium Partners has been known to fund loans in under 24 hours. Though this is not the norm, they can do it when circumstances warrant. They simply draw up the documentation, send the documents to the borrower for signatures, and then transfer funds electronically.
Banks don’t do that. Once a bank gives its final approval, a closing date has to be set. This gives both parties time to tie up any loose ends. Meanwhile, the loan goes from underwriter back to loan officer and then on to the processing department. Finally, funds transfer has to be scheduled for the same day as closing. It all takes time.
One of the advantages of hard money is speed. Because hard money lending is asset-based, it requires substantially less paperwork and can be instantly funded, meaning lenders can move much more quickly than banks and credit unions. No wonder property investors love hard money.