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?
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
- “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.
- 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.
- 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’.
- 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.
- 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.
How to Tame a Not-so-Friendly Hard Money Lender?
Most of us want to try hard money loans but we’re anxious of the not-so-friendly hard money lenders. What we want is someone who would act more like a family or a friend willing to lend you money, the less dead set way. How to do this? Here are the simple steps on how to tame your hard money lenders.
- Cash from a verified source.
This is one of the most essential things you should show to your lender if you want to get the loan that you want with less limiting structure and standards. Show your lender that you have an unfailing and sustainable source of income. If you are the lender and you can see that your borrower is capable of paying, who are you to say no?
- Collateral is your best asset.
Getting a loan is like joining a beauty pageant and the lender is the only judge. You have to put your best asset forward to charm her. And we all know that Hard money loans are always after the collateral so offer your lender a deal that she can’t refuse.
- Experience is a plus.
If a borrower already has experiences of getting loans before and she retained to have a good feedbacks from other lenders then this is a big plus point. Your experiences produce a warm connection between you and your lender. She will have the idea that you already know how to maneuver this kind of business. More experiences for the borrower, the less job for the lender. Yet, same interest incentives apply.
- Personal Guarantee makes Hard money lenders more secured.
All lenders want one thing: to get borrowers who can pay without the inconvenience. And this is better done with personal approach. Build a connection with your lender and personally assure her that you are capable of paying without any predicaments to be given in the future.
- Nothing beats Cash on hand.
Charm the judge with the best that you can. Splash her with the entire best asset you have and that includes money on hand. It gives her the idea that you are competent of producing money and with all that, you can pay the loan without a second word.