A hard money lender is a financial institution that specializes in providing loans to businesses and entrepreneurs who cannot obtain traditional financing. These lenders are typically more interested in lending to high-risk, high-return projects than they are in issuing conventional loans.
There are different types of hard money lenders, but the basic premise is that these lenders provide short-term loans to businesses or individuals in order to help them capitalize on investments. These loans can come in a variety of forms, including bridge loans, lines of credit, and unsecured notes.
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Bridge Loans: Bridge loans are typically used to help businesses get over a cash crunch or to cover unexpected costs for a short period of time. They generally have a shorter repayment term than other forms of hard money loans, and are often provided at lower interest rates than traditional lending options.
Lines of Credit: Lines of credit allow businesses to borrow funds continuously against future earnings or against collateralized assets. Because lines of credit are backed by the lender's creditworthiness, they're often more affordable and flexible than traditional loan products.
Unsecured Notes: Unsecured notes are similar to lines of credit in that they offer long-term financing options but don't require any upfront collateral. Instead, they rely on the borrower's ability to repay the note over time. Because this type of loan is less formal than others, it can be more difficult for borrowers to qualify for – which may be why unsecured notes are typically offered only to high-quality borrowers.