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The current credit crunch has put a vice like grip on the world of finance. Private money is still available and hard money loans are one way to access the money you need to survive these tough times.

Liquidity is the key to finance. Assets can be valuable, but they do not really help if you need to spend money. Hard money loans file this specific financing niche. These loans convert your illiquid assets into cash you can use.

Cash is king. This is true for both businesses and personal finance. You cannot pay the bills without it. Many of us are asset wealthy, but cash floor. Nothing is more frustrating since you cannot spend an asset.

So, how does this loan differ from basic loans? The difference is found in the fact that the lending party is ready to loan money when the borrower is not in great shape financially. Unlike a traditional bank, the lending party is not scared off by the financial risk.

Your basic commercial bank will not give an asset loan if your overall finances are not in good shape. There is a substantive reason for this. Banks are regulated, so they cannot take excessive risk.

While the private party is willing to take on the additional risk of a borrower having problems, the buyer is going to have to pay a premium to make the loan happen. That premium can be a serious disadvantage.

The cost of hard money loans can be staggering. Interest rates can easily be double the prevailing rate of normal rates issued by banks. The points are also a killer. Depending on the loan, the lender can charge 6 to 15 points or more.

Given these high costs, you probably are wondering why anyone would go with one of these loans. In many cases, it is a matter of perspective. Essentially, many businesses or people use these loans to buy time.

As a matter of perspective, consider this business. It own expensive manufacturing equipment and has a 50 million dollar order coming in next month. Currently, it cannot make payroll and needs help.

With millions in revenue just a short time away, the cost of a hard money loan really looks like a minor problem. The business is not buying a good load, it is buying time until that revenue starts coming in.

It goes without saying that the hard money loan is tailored to specific circumstances. This is not a loan for the first time home buyer. Still, it can provide critical financing for tough situations.

This entry was posted on Saturday, September 20th, 2008 at 5:44 am and is filed under Business.You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.