Mortgages & Creative Financing

Make Your Hard Money Lender Friendly

7 Articles Written

Comments in last week’s Private Lending blog were made regarding the rigidity of some hard money lenders’ underwriting and approval process.  I heard that readers wanted typical hard money lenders to be more ‘user friendly'. So, how do you make a hard money lender act more like your family friend or acquaintance, who lends you money with less restrictive structure and standards? How do you compel a hard money lender, who you really don't know, to make you a more borrower-friendly loan?

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Present your loan to the hard money lender seeing the loan through the eye of the lender.  What would be important to you if you were the lender?  Lenders like mitigated risks with a fair return.  Mitigating factors don’t take away credit risks, but they lessen the sting of potential risk.  So how does a borrower present a loan with mitigated risks?

Let’s Count the Ways

1.  “Profits cure a lot of ills, but cash flow pays the banker’s bills.” 

I have a coffee cup with this saying I received from attending one of my corporate banking extended trainings.  The quote is as relevant today as it was years ago.  One way to mitigate risk for the lender is for the borrower to have consistent and sustainable cashflow from a verified source.

2.  Collateral is the lynch pin of the hard money lender’s business model.


If a borrower offers acceptable collateral or additional collateral for security, this mitigates other percieved credit risks to the lender.

3.  Borrower experience goes a long way to mitigate credit risk to a hard money lender. 

If a borrower is experienced in the field which the lender is making a loan, this produces warm and fuzzy feelings for the lender and the lender’s loan committee.  An experienced borrower will better know how to navigate the unexpected proverbial ‘bumps in the road’.

4.  Personal guarantees make a lender feel more secure and creates a more desirable lending environment for the lender. 

Neither have I rarely executed a personal guarantee in my corporate banking career nor have I ever executed one in my private lending business, a personal guarantee makes it easy to get a loan approved.

5.  Cash is King. 

You have heard that saying I am sure. Having cash on hand shows a lender the borrower has the ability to create cash. Cash is needed when business take a turn the borrower was not expecting. It will also help making the lender's interest payments.

The Takeaway

Hard money lenders will do business with you if you create a less risky loan through mitigated factors.

To find a hard money lender in your area, check out the BiggerPockets Hard Money Lender Directory!

Photo: CarbonNYC

    Mark Ferguson
    Replied over 7 years ago
    I have found plenty of hard money lenders willing to loan money, just not at very attractive terms.
    Jeff Brown
    Replied over 7 years ago
    Hey Lee — In so many ways, hard money lenders are great examples of the reality many spend their lives avoiding — that is, the moment when the Firestones hit the asphalt. They demand unfettered facts, not HappyTalk and the beloved FairyDust of OPM without failure’s ultimate consequences. Good stuff, Lee.
    Lee Carney
    Replied over 7 years ago
    I concur Jeff. Mark…the lender’s rates are high because they have a perception a deal is risky for them. Take some of the risk out and then ask for a lower rate. Justify your position. Also, another way to get a lower rate is make a loan request when the lender has got a large amount of cash on hand and it is ‘burning a whole in his pocket’. If he has got cash on hand, he needs to put to work, the lender will be more apt to reduce his profitability to get your deal funded. To Your GOOD Wealth…
    Arthur Field
    Replied about 7 years ago
    Great article Lee! Its very difficult to make friends with a lender when there’ so much risk associated with the deal. I have found it to be essential to find the right project as well since money is collateralized with the property. Property value alone cant talk if the neighborhood is ill-fit. Also talk to your contractor and find out how your going to pay your lender back (while keeping your lender in the loop of course). Its never a bad thing for the lender to see you have a concrete plan on return of funds within the short term if possible. Again, great and informative article on a very tricky issue!