Most investors who seek private or hard money need it fairly quickly. Reasons can include:
–Other Notes coming due
–An unexpected interruption in funding
–A quick takedown of real property being offered at a deep discount
Or, the worst, a Note being called due by the bank without advance notice. Whatever the reason, private or hard money loans usually need to fund quickly.
One of our “preferred” lenders tells us that a loan will fund as soon as it takes them to feel “comfortable” with the deal as a whole. For our lenders to feel “comfortable” with a deal, we must provide specific pieces of information to them which help them get to the comfort zone very quickly.
Getting your lenders to this comfort zone requires a specific checklist that both borrowers AND brokers need to keep in their back pockets. One of the first items on this list is to identify the collateral being used for the loan. This is one of the single most important items that can stand between you and a speedy closing on the loan.
- What is the collateral or how is it classified?
- What is the value of the collateral being used?
- What is the value based on? (local comps, broker’s opinion, appraisal, etc.)
- Where is the collateral located? (Can it be readily accessed for inspection?)
- What encumbrances or liens are currently on the collateral?
- Who has Title to it?
Other important items on the checklist for speedy private or hard money closings include:
- 1. Who is the borrowing entity or individual? If borrower is an L.L.C. or corporation, who are the members? What is the contact info. for all borrowers?
- 2. Use of Funds: Lenders will need a brief but descriptive explanation for the use of the loan proceeds. If there is any cash out requested, borrowers will need to substantiate every dollar of the cash out. This is usually shown best with a basic spreadsheet.
- 3. Basic loan application: Primary borrower will need to provide a full loan application which includes social security number, date of birth, list of assets, etc.
If you are concerned about getting your loan funded quickly, use an experienced broker that will know what other crucial items are on this checklist. Often, borrowers will attempt to go to the lender directly, expecting a speedier route to closing. In my experience, not only is NO time actually saved by circumventing the qualified private money broker, but all too often, unnecessary fees are paid to the lender and both money and time are lost.
Posted by Blake Reese on March 9, 2009