What are the Pro & Cons with dealing with hard money lenders ?
The best way to think of the pros and cons is probably to describe HML relative to other debt financing for a project, e.g. banks, or an individual private lender.
Here are some of the more salient comparison points;
- Likely to be your lowest cost of capital (int. rates, pts., fees) amongst competing debt capital sources.
- Slower than a HML, and can be much slower than an individual private lender.
- More documentation than a HML, and possibly much more documentation than a private lender.
- More strict lending guidelines, e.g. project type and credit score
- Cost of capital can be quite a bit higher than a bank (int. rates, pts., fees), and is usually comparable with individual private lenders.
- Typically quite a bit faster than a bank (though this will depend largely on the specific HML + bank.
- Less documentation required.
- Less stringent lending guidelines generally speaking e.g. seasoning requirements
Individual Private Lender
- Cost of capital is usually on par with that of a HML, or possibly less.
- Typically faster than a HML + bank
- Less documentation than a HML + bank generally speaking
- High levels of subjectivity with regards to funding
- Constrained by capital; a private lender is typically not going to be lending a ton of money. You may have to find multiple private individual lenders if this is the route that you prefer to go.
Hope this helps,
@Michael Kinsella Yes thank you ! this was very helpful.
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