| The Merriam - Webster Online Dictionary defines hard | | | | necessities such as gasoline are higher. 3) The current |
| as: | | | | tendency of Federal and State governments to |
| 1 a: not easily penetrated: not easily yielding to | | | | reduce funding for social services, health services and |
| pressure b of cheese: not capable of being spread: | | | | education because of inadequate revenues; this hurts |
| very firm. | | | | individuals and businesses who have less money to |
| 2 a: of liquor (1): having a harsh or acid taste (2): | | | | spend on products and services which creates |
| strongly alcoholic b: characterized by the presence of | | | | additional drags on our economy. 4) The diminishing |
| salts (as of calcium or magnesium) that prevents | | | | value of residential real estate all across the United |
| lathering with soap i.e.hard water. | | | | States. This is related to the mortgage meltdown and |
| 3 a: of or relating to radiation of relatively high | | | | the fact that many people incurred debts that they |
| penetrating power: having high energy hard X rays b: | | | | cannot repay. The real causes of these events are |
| having or producing relatively great photographic | | | | complicated and beyond the scope of this article. |
| contrast i.e.a hard negative. | | | | Suffice it to say that these are hard times and hard |
| 4 a: metallic as distinct from paper hard money b: of | | | | times create needs for hard money loans. |
| currency: convertible into gold: stable in value c: usable | | | | What exactly is hard money? Here are seven |
| as currency i.e.paid in hard cash. d: of currency: readily | | | | examples: |
| acceptable in international trade e: being high and firm | | | | 1) A commercial real estate loan where the borrower |
| i.e. hard prices. | | | | receives funds based on the value of the property, |
| 5 a: firmly and closely twisted i.e. hard yarns. b: having | | | | usually 50% or less, at an interest rate higher than a |
| a smooth close napless finish i.e. a hard worsted. | | | | bank would charge. This is the most commonly |
| 6 a: physically fit i.e. in good hard condition. b: resistant | | | | understood type of hard money. In this financing, |
| to stress or disease c: free of weakness or defects. | | | | neither the income from the property or the |
| 7 a (1): firm definite i.e.reached a hard agreement. (2): | | | | borrower demonstrably supports the repayment of |
| not speculative or conjectural: factual hard evidence | | | | the loan. |
| (3): important or informative rather than sensational | | | | 2) A real estate loan to buy a residential property |
| or entertaining i.e. hard news. b: close searching i.e. | | | | where the borrower cannot prove their income. This |
| gave a hard look. c: free from sentimentality or | | | | may be accomplished with financing from a seller, the |
| illusion: realistic i.e. good hard sense. d: lacking in | | | | only party willing to take the risk of non-payment. |
| responsiveness: obdurate unfeeling i.e. a hard heart. | | | | 3) A small junior lien on income producing commercial |
| 8 a (1): difficult to bear or endure i.e.hard luck or hard | | | | real estate where the first lien is very large. For |
| times. (2): oppressive inequitable i.e.sales taxes are | | | | example, a million dollar second lien behind a ten million |
| hard on the poor. | | | | dollar first lien. Most lenders simply do not want to |
| 9 a: characterized by sharp or harsh outline, rigid | | | | consider a loan of this type because of the potential |
| execution, and stiff drawing b: sharply defined: stark | | | | liability for repayment of the first lien. It is ten times |
| i.e. hard shadows. | | | | the risk of the secondary loan. |
| 10 a (1): difficult to accomplish or resolve: | | | | 4) Most loans to people with less than excellent |
| troublesome i.e. hard problems. | | | | credit. Many loans are based on credit scoring. If you |
| As used in this article, hard money is intended to | | | | do not have a credit score that is high enough for |
| convey the idea that because of the current | | | | the lender's requirement, you simply do not get their |
| economic conditions, many financing needs will be | | | | loan and you may or may not be able to find a hard |
| more difficult to accomplish. They will require great | | | | money loan to accomplish your objective. |
| exertion and effort to overcome the economic | | | | 5) Accounts receivable financing to construction |
| obstacles of the current economy. Compared to | | | | contractors, medical providers and sellers of |
| 2006 and 2007, periods of relatively easy money, to | | | | agricultural products. Most factors do not offer to |
| obtain financing today you will have to have firm, | | | | these sectors of the economy because of the risks |
| definite facts to support your financing needs. And | | | | and complexities that are involved. |
| the cost of money will be more difficult to bear. Hard | | | | 6) Purchase order financing for items with gross |
| money is harder to find, harder to obtain and harder | | | | margins less than twenty percent. The twenty |
| to repay. Nevertheless, hard money may be an | | | | percent margin is a benchmark for sufficient |
| economic necessity as a means to an end to grow a | | | | profitability in a transaction to pay all financing costs |
| business or complete a real estate transaction. | | | | and create profits for the business after all costs are |
| Why is 2008 a time of hard money? This is a difficult | | | | paid. During hard economic times margins are |
| question to answer. If you ask 3 experts you | | | | squeezed. It is a vicious cycle. |
| probably will get three different answers. It may be | | | | 7) Loans to businesses that are particularly negatively |
| the economic equivalent of The Perfect Storm- a | | | | affected by the current economy. For instance, a |
| True Story of Men against the Sea. The phrase | | | | loan to build a new lumberyard is impacted by the |
| "perfect storm" refers to the simultaneous | | | | downturn in new real estate construction and a lower |
| occurrence of events which, taken individually, | | | | need for lumber. Most banks would simply decline to |
| probably would be far less powerful than the result | | | | consider such a loan. The same is true for developers |
| of their rare combination. These occurrences are rare | | | | seeking to build new housing tracts or office building |
| by their very nature, so that even a slight change in | | | | developments. This is not a good time to try to start |
| any one event contributing to the perfect storm | | | | a new mortgage brokerage company; although it |
| would lessen its overall impact. The stock market | | | | may be a good time to be a hard money lender |
| crash of 1929 and following depression exemplifies a | | | | provided that you are very, very careful in assessing |
| perfect storm of economic consequence. | | | | your transactional risks. |
| What are these events today? 1) The Mortgage | | | | What do all of these situations have in common? In |
| Melt-down. Major financial institutions in the United | | | | times of easy money these situations would be less |
| States are incurring billions of dollars in losses due to | | | | costly to finance and more likely to receive funding. |
| the loss in valuation of their investments in mortgage | | | | Today, the lender's answer to your request for |
| securities. The consequence for borrowers is that | | | | funding is more likely to be a polite but strong "no |
| these institutions are less inclined to take risks when | | | | way". Many lenders have effectively (if not actually) |
| loaning money for fear of additional losses. And their | | | | shut their doors. Many lenders will simply decline to |
| regulators are demanding that regulated lenders raise | | | | lend on hotels/motels, gas stations, owner/user |
| their credit standards for borrowers to qualify for a | | | | properties, properties with any environmental issues. |
| loan. 2) The devaluation of the American dollar versus | | | | Borrowers who do not have FICO credit scores |
| other world currencies. The U.S. government is | | | | above 680, with substantial net worth and income will |
| spending ginormous amounts of money in excess of | | | | find it is very difficult to obtain many types of loans. |
| what it collect in revenue due to the political | | | | Fortunately, the door for accounts receivable |
| compulsion to spend taxpayers' money, the war in | | | | financing is still wide open. |
| Iraq, Hurricane Katrina (and other natural disasters) | | | | The bottom line: Hard times in our economy will tend |
| and the war on terrorism. This makes our currency | | | | to force more individuals and businesses to borrow |
| less valuable. It makes importing to the U.S. more | | | | hard money- if they are able to get any money at all. |
| expensive. The American people have less money to | | | | Commercial financing with hard money will tend to |
| spend on goods and services, and their money buys | | | | grow as traditional sources of financing from banks |
| less than it did a year ago because prices of | | | | and institutional lenders simply will not be available. |