When you need fast cash to close a real estate deal, working with a hard money lender is a smart approach. You can close in a matter of days, instead of the weeks required for a traditional loan, allowing you to move quickly on hot opportunities. Hard money lenders also make lending decisions based on equity, not your personal credit, income, or tax returns, which means that even if you can’t get a traditional loan, you still may be able to get cash for your next investment property. 

Whether you want to buy your next fix-and-flip or refinance a commercial property to get quick cash, a private lender can often help. However, not all hard money lenders are the same. Take the time to research your options before jumping in. Even if you already work with a lender, it’s never too late to start a new relationship with one that is a better fit.

If you’re not satisfied with your current lender or are just starting to explore your options, keep these important signs in mind when making a decision. 

1. Your lender doesn’t actually originate loans.

Some companies are marketed as hard money lenders, but all they actually do is make referrals. Even worse, sometimes they collect a fee to help you find a lender, then do nothing at all. Once they learn that they can collect fees from you, they will keep asking for more money even if you’re not seeing results. 

Work directly with a lender that has the ability to give you the cash you need when you need it. You can tell if a lender is legitimate if they make direct hard money loans and have the capital to back them. Ask potential lenders how they generate capital. If you don’t get a clear, specific answer, it might be time to move on.

2. Your lender isn’t properly licensed.

Some states require private lenders to be licensed. For any state that your lender is operating in, confirm that they are licensed. If not, this is a sign that they might not be legitimate. In addition to asking lenders for their licensure information, research the requirements for your state and ensure that the lender meets them. 

3. Your lender’s website is too vague.

A legitimate lender will have a comprehensive website that describes all of their products, the history of the company, success stories, and more. If your lender’s website doesn’t feel deep enough, it could be because there’s nothing there. Fraudulent lenders quickly create new websites to attract new customers, so they are often superficial and have a limited amount of content.   

Take the time to read through the website of each potential lender to get a sense of their experience and determine whether they are a direct lender or not. It’s also a good idea to look for Google and Yelp reviews to see what others have to say about their experience with the lender. If they don’t have a presence at all, it’s a sign that the lender might not be legitimate.  

4. You don’t need a hard money loan.

There are a lot of reasons to work with a private lender, such as:

  • You want to purchase multiple investment properties.
  • You don’t have solid credit or income history.
  • The property you want to buy is distressed.
  • You want to make a competitive cash offer with a fast close.

However, if you are able to get a conventional loan and the property qualifies, there’s no reason not to take that path. 

How do you choose the right hard money lender?

If you have decided that hard money is the right approach for your project, evaluate your options before committing. Look for a lender that you can build a personal relationship with so future projects will be even easier to fund. Closely evaluate lender websites to learn how long the company has been in business, where they lend, what types of projects they fund, and other details that add legitimacy.

Once you have narrowed your list, talk to a real person at the company to ask any questions you have and learn more about their lending practices. Don’t be afraid to ask the lender to qualify themselves—this won’t be a problem for a legitimate lender. Finally, be wary of terms that seem too good to be true because they usually are.

Socotra Capital is a trusted direct lender.

Socotra Capital makes direct hard money loans for real estate investments. With 15 years of experience and more than 1,000 loans funded, we have a well-established track record and the testimonials to prove it. 

Read our Borrower’s Guide to learn more about hard money lenders and the questions you should ask when choosing a lender.