Hard money lending can also be sometimes known as private lending, equity lending, or trust deed investing. (I personally use these terms interchangeably.) In the simplest form it’s generally short-term, low-leverage loans with relatively high rates of interest, produced by private individuals, groups or institutions, supported by equity in difficult assets. The most typical asset being property, obviously.
This can be a brief overview but hard money lending is distinguished from conventional lending within the following way:
Conventional (bank) loans are things i call income lending. The main underwriting factors involve the borrower’s credit history: readiness and skill to pay for. The need for the particular property–the collateral–is a vital but secondary consideration. For any residential customer what this means is your credit report, and earnings level and stability is important. Available realm this means the property’s capability to cover your debt, along with the sponsors personal finances. In a nutshell, the main concern is the opportunity to make monthly loan repayments.
Hard money lenders switch this around. The best factor may be the collateral itself: just how much may be the property realistically worth and just how much equity cushion will it provide to safeguard the borrowed funds. The lender’s first concern is, when the customer defaults and he needs to foreclose, can he rapidly and simply dump the home and recover all his principal and (hopefully) interest and charges.
The 2nd critical element in hard money underwriting is exit strategy, or how can the customer pay back the borrowed funds in the finish from the term. Since many of these loans are short-term–1 to five years–there needs to be a obvious and plausible technique for repayment.
Below these 4 elements comes the borrower’s credit history: ability and readiness to create monthly loan repayments. Prior to the credit crisis it was barely considered whatsoever. Since 2007 even hard cash is searching a bit more carefully in a borrower’s capability to service your debt.
Hard money lending (as it is called today) has existed for many years and until twenty years ago approximately were built with a pretty seedy status to be very little diverse from loan sharking. While you may still find unsavory figures within the lending business, hard money profession has, overall, become quite professionalized. You will find lenders specializing in all kinds of assets and transaction types, which provide outstanding and highly professional customer support. It’s also a typical misunderstanding that hard money borrowers are financial difficulty cases. This may not be true. Private money supplies a speed and versatility that conventional, “look into the box” lenders simply can’t match. Many, otherwise most, hard money borrowers comprehend the proper value it provides within the appropriate situations.
If you are comparing companies offering money lending Singapore, do check their requirements and lending terms before anything else. Also, make sure that the repayment schedule and other aspects are fair and transparent, with no scope of hidden costs and charges.