The term “hard money loan” often sparks confusion for many people—imagining them as difficult to obtain or risky to have. In reality, hard money loans can be an investor’s best friend, providing quick, flexible funding when traditional banks aren’t an option. These loans are secured by real assets, not based on a borrower’s credit history, making them a practical solution for many real estate investors in California. 

Let’s clear up some common misconceptions about hard money loans and help you understand how they can be a valuable tool for your next property deal.

1. Hard Money Loans Are Only for People with Bad Credit

A widespread myth is that hard money loans are only available to individuals with poor credit. While traditional lenders heavily rely on credit scores, hard money lenders focus more on the value of the property rather than the borrower’s credit history.

In California, real estate deals often hinge on the property’s potential, not the borrower’s past financial struggles. If you have a valuable property or a solid investment plan, you may still qualify for a hard money loan, even with less-than-perfect credit.

2. Hard Money Loans Are Too Expensive to Pay Back

Some people think hard money loans are expensive because they have higher interest rates than traditional loans. While it’s true that hard money loans may carry a higher interest rate, the cost of waiting for bank approval or missing a time-sensitive real estate opportunity could outweigh the price difference.

In California’s estate market, securing a loan quickly can be necessary. The speed of hard money lending allows you to seize opportunities when they arise, making the higher interest rate a small price to pay for flexibility and fast funding.

3. Hard Money and Soft Money Loans Can’t Be Used Together

A common myth is that hard money loans can’t be used alongside traditional (soft) money loans. However, savvy investors often combine both types of financing to their advantage. Hard money loans can pay off soft money loans nearing their balloon payment or unlock equity in properties with partially paid-down loans.

On the other hand, soft money loans provide an excellent option for refinancing or funding construction projects, making them a strong exit strategy for hard money loans. By leveraging both, investors can create flexible financing strategies.

4. Hard Money Loans Have Strict and Unreasonable Terms

Many borrowers avoid hard money loans because they believe the terms are too restrictive. However, the terms of hard money loans are often negotiable and vary based on the property and the borrower’s specific needs. If you have a clear plan and a solid investment, you may find that hard money loans can be more flexible than you think, allowing you to structure the loan in a way that fits your financial goals.

5. Hard Money Loans Are Only Short-Term Solutions

Many think hard money loans are only for short-term projects, like fix-and-flip investments. While this is a common use, it’s not the only one. Hard money loans in California can be used for a wide range of real estate projects, from long-term rental properties to commercial investments. Some hard money lenders even offer loans for larger, long-term developments. With the right strategy, a hard money loan can be used for different projects, not just short-term flips. 

If you’re considering a hard money loan for your next real estate project in California, ARC Private Lending can help! We deliver innovative hard money solutions with competitive LTV flexibility. Contact us today!