Hard Money Business Loans
Hard Money Business Loans Happen All the Time
Hard money business loans are more popular than many people realize. Don’t let the name “hard money” put you off. The “hard” part of the name is about the type of assets that will collateralize the loan. “Hard” assets are defined as real estate, cash, jewelry, stocks, bonds, and other financial holdings. For a business loan, a hard money lender can put money into the company checking account very quickly compared to other funding resources.
Why Get a Hard Money Business Loan?
For people in business, time is always a consideration when it comes to capitalizing a project or a company. Historically, hard money lenders were often contacted when conditions for a traditional loan just won’t work. Many borrowers need capital quickly and going through a traditional loan resource like a bank or a mortgage company would take too much time. In most cases, borrowers need cash to make a deal or to stave off a creditor from foreclosure or default actions. Whatever the reason, the fact is a hard money business loan can save the day and the company. Many borrowers seek hard money loans due to the following reasons:
- Need money fast.
- Poor credit rating.
- No credit history.
- Tax returns and income information don’t match up.
- Need to “bridge” two loans.
- Complicated asset ownership for collateral.
What Collateral is Needed For Hard Money Business Loan?
For most hard money lenders, real estate is the preferred collateral to secure a business loan. Real estate has value as collateral due to its permanence and stability as an asset. Cash can come and go, stocks and bonds are traded easily, jewelry ends up at the pawnshop, but real estate stays in place and its value can be quickly identified for collateral purposes. When hard money lenders look at a loan opportunity, they are more concerned about collateral values than the borrower’s credit rating or income history. For this reason, hard money lenders look toward real estate to help them lay off any risks involved when making a loan.
Hard Money Business Loan Terms and Conditions
Business borrowers in need of a hard money loan have to understand the basic components included in a loan agreement. Many states regulate the hard money lending industry similar to other loan resources like banks and payday loan companies. As a result, the agreements containing terms and conditions should include the following items:
- Upfront fees – Lender’s “points” for executing the loan, documentation fees, appraisal fees, etc.
- Loan-to-Value (LTV) guidelines – Amount of funding available based upon real estate value ranging from 60% to 90% of Loan-to-Value calculation.
- Interest Rate – Full-term interest charged for funds borrowed and time/rate calculations in the event of a default on the loan.
- Lien position – Hard money lenders normally require the first position lien for funding a flip-and-fix project.
- Early Payment – Terms for early repayment of debt including discounts on interest or fees.
- Loan term – Payment dates and the final due date for balances owed with attention to balloon payments and default conditions.
Hard Money Business Loans Can Make the Deal
Many real estate investors involved in flipping houses or rehabilitating commercial properties utilize hard money business loans exclusively due to their fast turnaround time and straightforward lending terms. Hard money lenders don’t require the volumes of paperwork and information that traditional lenders require. More value is given to a borrower’s experience using hard money capital than to the borrower’s credit rating. The ability to close a deal often hinges on the availability of cash to pay for the purchase and hard money can put cash into a deal very quickly; sometimes in as little as 24 hours. When you’ve got to move on a deal and you need cash to close it, hard money business loans can make it happen.