In the hard money lending business, many companies have shied away from making smaller loans. Some companies will not look at or fund loans under $100K. Many companies prefer the large loan to the small loan. Why is this the case?
Often, the time spent on vetting the loan, acquiring the paperwork, and coordinating with escrow, title, borrower, and lender is just as extensive for a small loan as a large loan. And, because mortgage brokers and lenders are paid based upon a percentage of the loan amount, they prefer to do larger deals, rather than the smaller ones. Thus, many brokers pass on the smaller loans, due to the compensation.
Or, if the loan is pitched, brokers will often ask for a larger fee than the standard percentage to offset the amount of work. Many times, this fee will seem unfairly expensive to the casual borrower, and the borrower will pass.
Another reason is the risk versus reward. The costs to foreclose are substantial, but the net income to the lender, is very small.
Additionally, small loans are typically requested for consumer purpose, such as consumer debt payoff. With the recent laws clarifying consumer lending, these loans are no longer considered hard money loans. These are consumer loans – consumer loans require more rules, more peril for the private lender. So, most stay away.
The last reason is that small loans tend to be for properties in obscure rural areas, or for 2nd loans. While both have merit, both also have more risk. Again, most private lenders are careful to weigh the risk versus reward test to determine if they are onboard.
At Cushner Capital Group, Inc., we do fund smaller loans. We prefer to fund smaller non-owner loans and will go down to $40K! We understand that there are smaller investors, just as there are smaller loans. We do California Hard Money Lending. Call us (760) 845-9035.
