Hard Money Loans Aren't So Hard After All

"Hard money loans" are just as the name implies: very hard to come by, and very expensive. That may be changing.

No credit? Bad credit? Limited business experience? This is your lucky day.

"Hard money loans", those business loans focusing on "hard to finance" companies have always been as scarce as hound's tooth. And the paperwork -- yikes, mountains of it! And the credit reports -- page after page.

Well, not at this moment in time.

I wouldn't have believed it if I hadn't read it in the Wall Street Journal. But there is was, tucked away on page C-1 of Friday, March 3, 2006. Titled "Din of Roaring Corporate-Debt Market Drowns Out Growing Talk of a Bubble" sounds pretty innocuous for business borrowers. But read the article.

It begins: "Despite a long-held anxiety that companies soon will find borrowing money tougher, conditions in the corporate-debt market are as friendly as ever." And it gets better.

Basically this article says that many banks are making business loans that are far less than stellar (i.e., hard money loans), and many that probably wouldn't have been approved a few years ago. Credit means little in this environment. The banks make the spurious loans, then sell them off and they wind up in esoteric investments like CLOs ("collateralized loan obligations").

The bank isn't at risk. These very questionable hard money loans have been sold off. Since the bank makes their profit on the sell-off, they are under strong pressure to make more loans.

Although the article quoted just big deals like the purchase of Nieman Marcus and the cinema chain AMC (this is the Wall Street Journal, after all), I simply cannot believe that smaller banks are ignoring this trend. I suspect that bundling these smaller business loans is akin to bundling mortgage loans and selling them off.

What happened to the conservative nature of banks? Who knows. But for the moment it is gone. The Wall Street Journal article quoted Danile O'Connell, chief executive of Vestar Capital partners, a major private-equity firm, saying,, "Banks used to want to see you be more conservative. Now they encourage us to borrow more."

So go for it. You may not need a business plan. You may not need extensive financials. You may not need much of anything. Go visit your friendly local banker and see what you can arrange. (Oh, to keep up appearances, I think I would have a "business reason" in mind for the loan.)

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