By: Dominic Mazzone, Managing Partner, Regent Global Funds

This “Investment Perspective” comes straight from the rooms in banks that are filled with the proverbial bean counters known as underwriters that are making the lives of hard money lenders very easy and very profitable.  It’s clear that the banks are running out of both good decisions and good excuses for denying loans to businesses, property investors, and individuals.  It seems that we have reached the lunatic fringe in that even a person with AAA credit, great income, and a substantial net worth is not deemed as credit worthy.  It seems that the new paradigm in lending guidelines is that you must have more money sitting in a bank account than the amount you want to borrow.  It is because of this that hard money lenders are being asked to step up to the plate to fill the vacuum created by the credit crisis. Hard money, aka private money or any financing that is an alternative from conventional bank financing, is quickly becoming one of the only sources to get deals done. Many asset based lenders(ABL) in the form of ABL funds are operating as hard money lenders and are generating large profits.  Rates seem to be between 11%-20% and rising due to the demand.  The old adage goes that “cash is king”, and hard money is becoming the king’s champion. One interesting correlation to consider is this; as interest rates begin to rise, how high will hard money rates go if the banking guidelines remain tight?  Only demand will tell.

Copyright: Dominic Mazzone, Regent Global Funds 2008