Anyone who has studied hard money lending knows that one of its most attractive characteristics is speed. Most hard money lenders can approve, underwrite, and fund loans in a matter of days. Meanwhile, banks can take months to get from application to funding. But is that it? Is speed the only reason property investors appreciate hard money?

Property investors are mentioned here because they are hard money’s primary customers. Although hard money lenders can lend to whomever they choose, Salt Lake City’s Actium Partners say most loans are devoted to obtaining investment properties.

It turns out that property investors do not treat hard money as a financing option of last resort. According to Actium, hard money is the first option for many investors. Investors appreciate funding speed, no doubt, but there are other characteristics that make hard money attractive to them.

Hard Money Is Convenient

For starters, obtaining hard money is about as convenient as one can get in commercial lending. Hard money lenders have very few documentation requirements, comparatively speaking. As a result, putting together a loan application is pretty simple. An investor can submit his application and then rest assured he will not be getting endless phone calls for the next three weeks requesting more documents.

By comparison, investors often need to jump through one hoop after the next to obtain financing from a bank. It can be exhausting. If investors had to choose one word to describe traditional financing, it certainly would not be ‘convenient’.

Hard Money Terms Are Short

Actium Partners says that hard money loans typically have terms of 6-24 months. Some lenders are willing to go as high as 36 months. Is this attractive to investors? Absolutely. A short-term loan gives them the financial resources to get deals done without tying up their cash for 30 years.

Short term loans are also better for investors from the standpoint of interest. Even though hard money loans generally come with higher interest rates than their traditional counterparts, investors can actually pay less total interest because hard money terms are so short. That is the dirty little secret of traditional lending. Traditional lenders make tons of money on interest by extending loans over several decades.

Hard Money Loans Can Be Interest-Only

Speaking of interest and extended terms, a general rule of thumb dictates that hard money loans are usually structured as interest-only loans. This means that the principal an investor borrows he’s paid in one lump sum on the loan’s maturity date. Monthly payments made in advance of maturity cover only the interest.

The interest-only structure makes it a lot easier for lenders to offer early repayment without any penalties. As long as loans remain outstanding, they are still earning interest. Early repayment reduces the total amount collected in interest, but it also gives the lender an opportunity to turn around and reinvest that cash in a new deal.

Risky but Very Worthwhile

Property investors appreciate hard money lending because it has so much to offer. The one downside – and it supplies to both parties – is that hard money lending is risky. But both parties also stand to gain quite a bit. Their potential gains make the risk worthwhile.

Hard money takes a lot of flack from financial writers and bloggers who don’t fully understand how it works. It is not the trap it is made out to be. And in fact, hard money is appreciated by investors of all types – particularly real estate investors who could not do what they do if they were forced to rely exclusively on traditional bank lending.