David Knudson is the president and co-founder of Gravity
Capital LLC, a direct-lending alternative finance company
based in Orem, Utah. Knudson oversees loan procurement,
underwriting and risk management. With more than 40 years
of real estate experience, from acquisitions and finance to
dispositions, Knudson can quickly assess a hard money loan
scenario, determine its viability and close the deal. Knudson
also has found success as an author, speaker and investor.
Reach Knudson at (801) 750-3838 or email@example.com.
Hard Money Financing Can
Be the Path of Least Resistance
A private money lender has the freedom to structure solid deals
that fall outside of a bank’s comfort zone
By David Knudson
American football is a rigid sport. It forces players to work within a structured en- vironment that allows for very little freedom, especially for linemen, whose
job is to block the attacking defense. Linemen are expected to do essentially the same thing over and over.
Rugby, however, has a different set of rules. Players
participate in all parts of the game —offense, defense,
running with the ball, kicking it, passing it, scoring,
punting and tackling. Rugby is every lineman’s dream.
The game is fluid and allows each player an opportunity
to participate in all phases of the sport. It gives players
Rugby, by analogy, is what alternative funding (or
hard money) has become in the finance world. The
sky is the limit, and the deal-structure possibilities
are wide-ranging. Private nonbank lenders have the
flexibility to lend based solely on the equity a borrower
brings to the deal. After that, everything else is examined as an additional consideration.
Is the borrower a good credit risk? Does he have
reserves, partners and income? In the private lending
world, as a lender or mortgage broker representing a
borrower, these factors can be taken into consideration
and then, based on a risk-return analysis of a proposed
deal, a decision can be made to lend or borrow and
what to charge or pay.
Conventional banks have a place in the commercial
mortgage arena. As a commercial mortgage broker, if
your client has a credit score of 800, a large downpayment, great income and a solid project, they will likely
qualify for a low-interest bank loan. Just like football
linemen, this bank loan works within a narrow scope.
Alternative lending, or hard money, however, gives
the underappreciated lineman the ball and the option
to run with it. For millions of entrepreneurs, securing
hard money financing through private money lenders
may be the only way they can qualify for a commercial
mortgage loan. These nonbank lenders have paved
the way for a wider range of businesses to access capital
Hard money pitfalls
Borrowers and investors in the hard money arena can
often be overzealous. Borrowers coming in with the
wrong expectations can easily fall prey to unscrupulous lenders or brokers. One of the biggest red flags
that a borrower can encounter is a request for a large
Many hard money lenders take minimal or no fees
upfront. If your lender is asking for more than an ap-
praisal fee or an inspection fee, you should run. As
a mortgage broker, make sure your clients are not
duped by a lender or another broker seeking short-term,
upfront fees of five or six figures. Brokers, and the bor-
rowers they represent, should be aware of the danger
that such a lender or broker is likely not on the up and
up and may well run off with the money.
Here’s how such a scheme might work. Don is an
investor who is seeking a $500,000 loan. His collateral is
10 acres of beach property in a spectacular area. After
further investigation, it’s discovered that Don is using
$400,000 of this loan to cover an upfront fee to be
paid to a loan broker of questionable character.
Interest rates are another area where caution is warranted. Most hard money lenders have a niche they
cater to. Some of these hard money lenders are fast
and expensive, some work with fix-and-flip projects,
and others focus on apartment or land deals. Each one
has their own expertise, loan range and parameters.
The trick is to find the hard money lender that fits
best with your project at the right price. Be warned
that hard money can be expensive, so borrowers and
the mortgage brokers they work with will need to
keep up with the interest and fee trends. Making the
right deal can facilitate healthy returns.
Kent is a developer who was financially devastated
by the 2008 real estate crash. He is knowledgeable
about land acquisitions and development. Kent tied
“An Alternative Lending Checklist,”
For more articles on hard money
View these articles and more at
“Take a Local Approach to Hard Money,”
“Don’t Fret Over a Bank-Loan Turndown,”
“Private Money Can Move Mountains,”
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