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Winston Rowe

Things That Will Cause a Private Hard Money Lender to Reject You

Thursday, November 1, 2018 - Article by: Winston Rowe - Winston Rowe & Associates - Message

Your loan application has been rejected by four banks. You are starting to think you might as well hit up the local loan shark, but the thought of having your legs broken for missing a payment doesn't appeal to you.

So instead, you decide to give your local Private Hard Money Lender a try.

You've been told it is much easier to get approved and it will not take anywhere near as long to get a decision on your application as it did with the bank.

However, while getting approval from a private hard money lender is easier and faster, there are still ways it can be messed up.

Three Ways to Get Your Private Hard Money Lender to Reject You

You thought a private hard money lender was supposed to approve anyone, but you forgot about one thing--they are still a business. Like any other business, they want to make money. To do so, they can't just approve any old application for a loan. They have to draw a line somewhere.

Here are three places many will do just that:

1. Insufficient equity/down payment: A Private Hard Money Lender is expecting to take on some risk with any loan, but doesn't want to take all the risk. The borrower will need to have a substantial amount of equity in another property in order to secure the loan.

If they don't, they will need to be able to make a sizable down payment instead. If the borrower can't do either the lender will probably reject the application.

2. Insufficient income: Private hard money lenders will not be as stringent about what they require, but they still need to believe that the loan is going to be repaid; or at the least, that you can make the monthly payments right now.

If you can't show enough income to make the payment now, chances are you will not have it later and your loan will be denied. No one wants to get on board a sinking ship.

3. Exit strategy: the loan you will get from your Private Hard Money Lender will be a short term one that will probably have a balloon payment at the end. Most people will not have sufficient cash on hand to pay off the balloon payment so before approving your initial loan, the lender will want to know your exit strategy (how you will handle it).

Are you going to sell the property, sell a different one, or refinance with a new hard money loan or maybe even a conventional one? If they don't see that you've thought ahead chances are good you will not get approved.

What to Do after You've Been Rejected

One of the many good things about a private hard money lender is that you will get your rejection notice relatively quick. So, once you find out why they said no, you can go about correcting the error.

If you can't afford a larger down payment or don't have enough equity in anything, you may have to reconsider your plans.

If you already have an operating business that isn't making enough income, you may need to see where you can cut cost and increase it. As for an exit strategy--be prepared; it's as simple as that.

Published by Winston Rowe and Associates a no upfront fee commercial real estate finance firm. The can be contacted at http://www.winstonrowe.com

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