A hard money loan is secured on substantial assets. They’re not a new notion; most historians believe the first evidence of loans backed by real estate dates back to Babylon in the 18th century BCE. Babylon’s infamous tyrant, Hammurabi, founded the world’s first national private lending system.
Other ancient civilizations, such as the Tang Dynasty, the Roman Empire, and the Spanish Empire, established various money lending systems after Hammurabi.
The Great Depression
Hard money loans first surfaced in the real estate market during the Great Depression in the United States. As they watched the banking industry crumble, people began withdrawing money from their banks and holding it in their homes, further hurting the financial system and creating a vicious cycle.
This brought about the trend of borrowing money from private entities. At the time, hard money loans had much higher interest rates than bank loans. This was because the economy was in flux, and no accurate expectations of improvement were available.
Interest rates continued to rise because of the high-risk character of these loans. However, without a steady source of income, most people would be turned down by banks. They were desperate enough to pay a higher interest rate for the loan asked by private lenders.
The 1950s Revolutionary Changes
Hard money loans resurfaced in popularity in the United States and Canada in the late 1950s. Banks didn’t rely on people’s incomes due to the instability of revenue sources, making it difficult for most people to acquire a bank loan. Hard money loans were still a high-risk, high-interest option, but they were the only way to borrow money.
The Real Estate Crash of The 1980s
The hard money lending industry suffered during the real estate slump of the 1980s and early 1990s. Lenders overestimated the future value of private properties, granting loans well above the property’s actual value. Lenders began to use loan-to-value ratios to assess the borrower’s need and ability to pay following this.
The Financial Crisis Of 2009
Until the mortgage crisis of 2009, there were no restrictions on hard money lending. Due to a lack of regulation, the real estate bubble burst, bringing about a global financial catastrophe.
This led to the introduction of regulatory laws to the money lending business. From 2006 to 2008, foreclosures increased by 225 percent, with 3.1 million foreclosures recorded in 2008.
Hard money is often frowned upon and accused of being exploitative when banks refuse to approve loan applications. Since the financial crisis of 2009, many rules have been put on hard money lenders to avert problems.
2010 And After
Since the financial crisis of 2009, the hard money market has grown dramatically, and obtaining a hard money loan is now easier and safer than ever. Since 2010, the private loan industry has more than doubled.
By processing and accepting loan requests in less than a week, the private lending industry has helped real estate investors. Because of technical improvements and the government’s legitimization of commercial lending firms, borrowers’ interest rates on private loans are lower than they’ve ever been.
Hard money lending is the way of the future. Are you looking for a trustworthy hard money lender? Commercial Private Equity will assist you.
In addition to the loans, we also provide commercial hard money loan counseling to help you ensure the best practices for borrowing and repaying loans.
Contact us today for more details.