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Discuss the Benefits of Private Loans With a Hard Money Lender

There are different types of business and residential loans available for qualified borrowers. This includes traditional bank loans as well as private hard money loans. It’s important to note that there are significant differences between these two types of loans.

Basic Qualifications for a Bank Loan

When someone is interested in taking out a business loan, for example, there are several criteria they need to meet in order to do so. In addition to being established in business for a minimum of two years, they also need to meet the following qualifications:

  • A minimum of $250,000 in annual revenue
  • A good personal and business credit history
  • A cash-flow positive status

Basic Qualifications for a Private Loan

For the most part, a private hard money loan is secured by one or more properties owned by the borrower. Since this is how an investor’s assets are protected, these properties need to have a certain percentage of equity. In general, this will range between 30% to 50%.

In order to establish home equity, a certain amount of time needs to pass. This is because most buyers will take out a 15 or 30-year mortgage. While house prices do fluctuate, they tend to increase over time. Due to this, as people become older, they will have an increased percentage of equity in their home. For homeowners under the age of 35, the median amount of equity they have may be $20,000. Given today’s housing market, this would likely be insufficient to apply for a hard money loan unless they possessed other assets from a business or another source.

Loan Durations for Bank and Private Money Loans

There are also different payment periods for each type of loan. Traditional loans are usually repaid over a longer period of time than private loans. This can range between one to 20 years. Private loans, however, have a shorter repayment duration. These are usually granted for up to five years or less.

Interest Rates for Hard Money Loans

Interest rates are higher for hard money as opposed to bank loans. These types of loans also have lower loan to value ratios. While these rates will vary, they can begin at 15%, 18%, or at an even higher rate.

Learn More About Hard Money Lenders and Loans

If you’re considering your options, you may be interested to know that hard money lenders can provide you with funds faster than a traditional bank can. The time it takes to process a loan with a hard money lender is usually between seven to 14 days. This can make a significant difference when you’re planning to expand your business, purchase a second home, or otherwise make a personal investment.

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