Finance Blog

So You Want to Be a Hard Money Lender – Here’s What You Need

Hard money lenders provide a valuable service to business owners, investors, and others who need financing outside of the traditional banking system. Perhaps you’re thinking of getting into the business yourself. You know that hard money lending can be profitable, and you want your piece of the pie.

First of all, lending opportunities are always available. You do not have to worry about that. But there are a few things you need, in ample supply, before you get started. Take a look below. As you read, just bear in mind that hard money lenders are regulated at the state level. The information in this post is designed to be general in nature. It may be affected by individual state laws.

1. Substantial Financial Resources

So you want to be a hard money lender? The first thing you need is money, and lots of it. The smallest of hard money and bridge loans could be worth no more than $50k. But most hard money loans are in the hundreds of thousands of dollars. The biggest loans could be worth millions.

Hard money firms, like Salt Lake City’s Actium Partners, typically attract funding from multiple investors. These investors pool their money together in funds managed by the hard money firm. Actium Partners then uses this combined capital to make private loans on behalf of the investors, aiming to generate returns for everyone involved.

2. Industry Knowledge

If you are looking to lend more than a few thousand dollars in your savings account, it is important that you possess adequate industry knowledge. You need to know how the hard money industry works in your state. You need to know state laws and regulations. You need to know best practices among other hard money lenders in your state.

3. Market Knowledge

Along with industry knowledge is market knowledge. For all intents and purposes, hard money lending is a form of investment. You are investing funds in someone else’s project while expecting a healthy return. But investing in every opportunity that comes your way isn’t smart.

Just as an example, Actium Partners writes a lot of loans for commercial real estate investors. A smaller number of their loans go to local businesses. However, they do not get involved in residential mortgages, fix and flip projects, building and construction loans, and property development.

None of those other opportunities should be automatically avoided. It is just that Actium has chosen a single market to focus on. Their strategy is a wise one. But to make it work, they need to have sufficient market knowledge.

4. Nerves of Steel

Hard money lending is not for the faint of heart. It’s not for people with a low risk tolerance. Due to the nature of hard money and bridge loans, there is a significant amount of risk taken with every loan underwritten. You need to be prepared for that. You need to be able to face every loan with the knowledge that you could lose everything.

Most hard money and bridge loans turn out okay. Lenders get their money and move on to the next deal. But sometimes loans fail. If you give up at the first sign of failure, you will not make it as a private lender. You need to be able to stick with it no matter what.

There are other things you need to be a successful hard money lender. The three mentioned in this post simply form the foundation of a successful lending career. If you think you have what it takes, go for it. There is money to be made in private lending.

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