There’s a common misconception that soft money is money on paper while hard money is liquid cash. These definitions couldn’t be further from the truth.
Hard money loans and soft money loans sharecertain similarities. Both are used in the real estate business, and interest payments are mandatory throughout the loan period. Both also require down payment or collateral, but hard money loans are typically secured by the project that needs financing in most cases.
There are also some very distinct elements at the core that set the two apart. For instance, most hard money lenders are high net worth individuals or private firms, whereas soft money loans are offered by conventional financial institutions such as banks.
Let’s explore some of the differences that make hard money loans more appealing than soft money loans. Visit Asset Based Lending to learn more about it.
Benefits of Hard Money Loans
Fast Turnaround Time
Hard money loans have a much faster turnaround period meaning that you get the loan for a fraction of the time it would take you to get the conventional loans.
Depending on the circumstance and provider, you can even qualify and receive the money in 3 to 5 days. This is very convenient when you consider the fact that soft money loans often take upwards of 30 days to go through the approval processes.
Fewer Qualification Requirements
Eligibility is a significant factor in the financing business. It is the first control area when it comes to dealing with the risk of defaulting for lenders.
While both hard and soft money lenders use specific criteria to determine whether an applicant is eligible for a loan or not, most soft money loan seekers are often turned down because of the many hoops they have to jump through.
More Open To Different Sectors/ Areas on Investment
While conventional lenders often have structures that dictate their ideal investment portfolio, hard money lenders are much more open-minded and are willing to try their luck with unexplored investment opportunities.
This allows innovators or applicants with complex projects to access the funding they need to finance their projects. However, the lenders will often require a down payment or equity to ensure that the risk is balanced.
The Bottom Line
Ultimately, when dealing with loans, both hard and soft money, there’s a lot that comes into play for both the loaned and the loanee, such as credit score, the intended use, repayment period, and collateral, among many other things. These factors are what determine whether the loan will be issued or not.
Having understood the differences between these two lending landscapes, hopefully, you can evaluate your needs with a clearer understanding of what is better suited for you as you seek financing for your business or project.