Avatar's Blog

» Personal Guarantors Required on Hard Money Loans

Posted on 4/28/2005
Hard money loans are loans based on the value of real estate and the borrower's equity in it. In general, the reasons people choose hard money loans are;
  • they must close a purchase or refi quickly
  • they do not have sufficiently good credit to get a loan from a bank
  • the property does not meet bank qualifications for obtaining a mortgage
  • the business is too tenuous to obtain a loan from a bank
Except for some circumstances surrounding the first reason - timing - for obtaining hard money loan rather than a conventional mortgage, the reasons all indicate an 'out of the box' or out of the ordinary loan scenario. In other words, the risk is greater than a bank is willing to take. Hence, the existence of private lenders. Private lenders use real estate as the collateral for the loan, but they also ask the borrower to personally guarantee the loan as an added insurance. As the risks are often significantly higher than loans made by local banks, it is easy to understand this requirement. In truth, you will find almost all banks require the same personal guarantee for business and real estate loans as well.
Posted in Miscellaneous