Small businesses, real estate owners and investors must conduct their due diligence when looking for a hard money lender online. While technology enables quicker, easier access to funding, it also creates new potential avenues for associated fraud. Knowing what to look for and how to best navigate online sources of hard money can help prospective borrowers steer clear of unnecessary risks and make smart, informed decisions.
Fortunately, there are several steps borrowers can follow in this pursuit. When seeking a hard money lender online, consider these common-sense tips to make the process smoother, and more secure:
Hard money loans have easier underwriting standards, considering the value and equity of a property rather than the creditworthiness of the borrower, and can be funded faster than a traditional loan, usually within five to 10 days.
Many hard money lenders tend to underwrite loans in areas close to home, or in specialized markets. Simply stated most lenders have a geographic area that they like to lend in because they are familiar with that market in terms of valuation, time for resale, legal regulations related to the lending process, and lending parameters that are typical for the area.
Asking around and reaching out to local individuals and resources removes a significant amount of roadblocks in the due diligence process. Besides performing more accurate market comparisons, borrowers can have a better idea of interest rates, terms, points, and other area-specific conditions that apply to their hard money loan.
More importantly, borrowers can “follow the money,” so to speak. Online due diligence for hard money loans will turn up a number of players who are brokers as opposed to direct hard money lenders. Some brokers may intentionally misrepresent themselves as direct lenders, and tack on unnecessary, extra fees that can add up.
This does not refer to cemetery markers, or the frozen pizza brand.
“Tombstones” refer to deals the lender has closed in the past. Direct hard money lenders love showcasing these transactions, more for due diligence purposes than for vanity.
Tombstones serve as advertisements, of sorts, for the capacity of the lender. Types of properties, loan-to-value rates (LTV), and other loan criteria are included. They can inform potential borrowers about what to expect on their deals.
Tombstones shouldn’t be considered all-encompassing guides for prospective borrowers regarding their detail-specific, respective loan cases, however. Lenders might use them to highlight a difficult case that falls outside the normal lending parameters, or a high-profile deal that adds legitimacy to their portfolio. Tombstones, therefore, are better viewed as a source for a more general overview of the lender.
Performing due diligence when searching for an online hard money loan can inform and protect the small business borrower. While online resources may be helpful, conducting independent research and speaking directly with others who’ve successfully been through the process can prove invaluable.
That’s because, while technology has provided a helping hand, it is no substitute for common sense.