One of the biggest challenges for any entrepreneur is finding capital to fund their businesses. In fact, according to the Small Business Administration, only 30% of small businesses receive financing through traditional bank loans.
How much capital does your company require? Is it time to expand or start a new venture? If you answered yes, consider applying for a Hard Money Loan from a lender specializing in financing businesses.
So what happens when banks won’t lend you money? That’s where hard money loans for businesses come into play, and they’re willing to offer short-term loans to help finance your business.
Hard money lenders specialize in lending to borrowers who don’t qualify for traditional bank financing. They offer competitive rates, flexible terms, and quick turnaround times. In addition, they often have access to real estate collateral that other banks won’t touch.
But before you shop around for hard money loans, there are some things you need to consider.
Construction Loans – How Much Can I Afford in San Diego?
If you’re considering getting a Hard Money Loan for your business, here’s some critical information to consider. First, let me say that Hard Money Loans are not for everyone, and they are only appropriate when no traditional financing options are available.
They are expensive (typically between 4% and 8%) and require strict documentation. So be careful. Second, they are not a loan. Instead, they are capital investments allowing you to purchase property below its fair market value.
This means you pay a lot upfront, but you may make a profit after selling the property later. Third, you must prove that you need the funds now. And finally, you must put down a large deposit.
Now, let’s talk about how much you can afford. The amount depends on several factors, including the type of property you plan to purchase, the location, and the current state of the real estate market.
How Commercial Bridge Loans Work
Commercial bridge loans are short-term financing solutions designed to help businesses grow. They’re typically used when cash flow becomes tight because of seasonal fluctuations, unexpected expenses, or slow sales.
They work by providing a line of credit that allows you to borrow against future income. This means you won’t need collateral (like real estate) to secure the loan, making them ideal for small businesses that may not offer collateral.
Commercial bridge loans aren’t based on credit scores, unlike traditional bank loans. Instead, lenders use a combination of factors, including past performance, current financial health, and projected growth, to determine whether to approve a loan request.
If approved, you’ll receive funding within 24 hours. Once the funds arrive, you can pay off the loan.
You’ll complete a simple application form when you apply for a commercial bridge loan. The lender will review your information and decide whether to fund your loan. Your application process will include details like your company name, address, contact number, and previous lending history.
Once you’ve been accepted for a loan, you’ll sign a promissory note agreeing to repay the amount borrowed over a set period. Lenders usually require borrowers to pay back between 12 and 18 months.
After signing the agreement, you’ll submit a security deposit of 20% of the total loan amount. This ensures the lender has enough money to cover losses should the borrower default.
Finally, you’ll complete a thorough appraisal process to ensure the property securing the loan is worth the total value of the loan. After reviewing the appraisal report, the lender will issue a final approval letter stating the same loan and the repayment schedule.
Your loan will be funded once you meet the following conditions:
• You must have sufficient cash reserves to cover the loan and interest payments.
• You must access additional capital to cover the remaining loan balance.
• You must be able to show that you can repay the loan.
A bridge loan is a type of short-term loan, typically taken out for 2 weeks to 3 years pending the arrangement of larger or longer-term financing.
Asset-based Loans: Who Should Use Them?
An asset-based loan is a type of hard money loan where the collateral used to secure the loan is real estate. The borrower owns the property outright, and the lender finances the purchase price.
There are two types of asset-based loans: seller financing and owner financing. Seller financing occurs when the borrower sells the property at a discounted rate to the lender, and owner financing occurs when the borrower purchases the property directly from the lender.
Both types of asset-based lending require borrowers to pay down the principal balance over time, meaning that the interest paid on the loan must be greater than the amount borrowed.
If the borrower defaults on the loan, the lender may foreclose on the property and sell it to recover losses. However, this is not usually necessary because most lenders offer insurance against default.
Residential Rehab Loans
Several options are available if you’re looking for hard money loans for residential rehab projects. The most common type of loan used for this purpose is a Construction Loan, and this loan allows you to borrow funds for building improvements at a fixed interest rate over a set period.
Another option is a Hard Money Mortgage. These loans allow borrowers to purchase the property outright rather than refinance existing mortgages.
There are many benefits to these types of loans, including lower rates and no prepayment penalties. However, they come with some drawbacks too. One drawback is that lenders typically require higher down payments than traditional mortgage programs, and another disadvantage is that they often carry higher closing costs.
Some renovations cost thousands of dollars, while others only require a small amount of work. Renovations can include everything from adding a bathroom to updating appliances.
Before you begin any renovation project, consider these questions:
- What types of materials will I need?
- How long will the job take?
- Will I need permits?
- Can I find contractors who specialize in this area?
- Do I have enough cash flow to cover the project?
Once you’ve answered those questions, you can determine whether to hire a contractor or perform the work yourself.
If you hire a contractor, ask them to give you a written estimate. This document will tell you precisely what you’ll pay for labor and supplies.
Keep in mind that some projects will require additional fees, depending on the scope of the work. For example, if you plan to add a swimming pool, you must purchase a permit from the city.
Another essential factor to consider when determining renovation costs is your location. Some areas are costly to renovate, while others are relatively inexpensive.
Benefits of Using Business Term Loans
Business term loans offer many benefits over traditional bank loans. They’re usually cheaper than conventional loans because they require no collateral and typically carry lower interest rates.
They’re also flexible, allowing businesses to borrow at any point during the loan period. This means there’s no need to wait until the month’s end to repay the loan.
Finally, business-term loans are often used for short-term projects, meaning they’re ideal for small businesses looking to grow.
Please take Advantage of Our Flexible Loan Options
Business owners often need cash fast. They may face unexpected expenses like payroll costs, equipment repairs, or medical bills. Or maybe they’re just looking for extra capital to help them grow their business. Whatever the reason, hard money loans are available to companies nationwide.
If you’re interested in getting a loan, several types of hard money lenders specialize in lending to small businesses. Each type of lender offers different benefits and drawbacks, so it pays to shop around. But no matter which type of lender you choose, keep these tips in mind when applying for a loan:
1. Be honest about your financial situation. Don’t lie about your income or assets. Lenders won’t lend you money if they suspect you’re not being truthful.
2. Get pre-approved for a loan. This gives you an idea of how much money you’ll receive and helps you avoid wasting time on applications that aren’t approved.
3. Keep track of your payments. Make sure you pay back every penny you borrow. And remember to include interest in your calculations.
4. Consider taking out multiple loans at once. Some lenders offer flexible financing options that allow you to take out various loans over time, enabling you to spread out your debt payment schedule and reduce the interest you pay.
5. Shop around. Different lenders have different rates and fees, so compare rates and fees between lenders. Ask questions about each lender’s policies and procedures. Then decide which lender works best for you.
12-Month Interest-Only Loans
If you’re looking for a hard money loan, consider an interest-only loan instead of a traditional mortgage. An interest-only loan allows you to pay off the principal faster than a conventional loan, which means you’ll be able to save thousands of dollars over the life of the loan.
An interest-only loan may not be suitable for everyone, however. If you plan to use the property as collateral for another loan, you won’t qualify for this type of loan. Also, interest-only loans require monthly payments until the balance is paid off.
But if you’re looking for a fast cash solution, an interest-only loan may be just what you need.
There are two types of loans: fixed rate and variable rate. The difference between them is simple: Fixed-rate loans offer a fixed interest rate for the life of the loan. Variable rate loans change rates periodically based on fluctuations in the financial markets.
Fixed-rate loans usually require lower monthly payments than variable-rate loans because the borrower knows how much they will pay each month. However, there are some drawbacks to fixed-rate loans.
One drawback is that borrowers must repay the entire amount immediately, regardless of whether they still need it. Another disadvantage is that fixed-rate loans may not be available when needed most.
Variable-rate loans, however, allow borrowers to spread out the repayment over several months. This means they can now take advantage of lower rates and avoid paying more later.
But this flexibility comes with its risks. Borrowers who use variable-rate loans often find themselves stuck with higher interest rates after the initial period ends.
Consider a fixed-rate loan if you’re looking for a hard money loan for a commercial property. They’re typically cheaper upfront, but you’ll be locked into a specific payment schedule. If you’d rather spread out your payments, use a variable-rate loan.
Shorter Repayment Periods
If you’re looking for a hard money loan for business, you may be surprised at how short some lenders’ repayment periods are. Some loans offer monthly payments for only six months, and others require borrowers to repay their loans within two years.
This means that when you take out a hard money loan for your business, you may not need to worry about paying off the loan until after your next payday. This is excellent news because it gives you more flexibility in managing cash flow.
However, this shorter repayment period comes with its own set of risks. The most obvious risk is that you won’t have enough money to repay the loan when it comes due. So, consider whether there are any ways to reduce the amount you borrow.
What is Your Business Credit History?
If you’re looking for a hard money loan, you need to prove that you’ve got a solid credit history.
Your credit score isn’t enough. The lender must verify that you have a steady record of paying bills on time. So, when applying for a hard money loan for your business, ask yourself these questions:
• Have you paid off any traditional loans within the last 12 months?
• Do you pay your taxes on time every year?
• Are there any liens against your property?
• Has anyone ever filed a lawsuit against you?
• Is there a judgment lien against your home or business?
• What is your current debt load?
• How long have you been operating your business?
• Who owns your business?
• Does your business have a lease agreement?
• Do you own your building outright?
Your business credit score is based on your ability to manage your finances responsibly. It’s calculated using information from your bank statements, tax returns, and other financial documents.
The lender will review all of this information before deciding if you’re eligible for a hard money loan.
How Much Can You Afford to Pay Each Month?
When taking out a hard money loan, it’s essential to understand what payments you can afford.
You don’t want to end up paying too much each month. And you don’t want to miss a single payment.
So, before signing any agreements, know precisely how much you can afford to pay each month before getting your access to funds.
A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by real property.
Hard money loans for business are viable if you’re looking for quick access to capital. You can get a hard money loan for up to 80% of the value of your property, so you don’t have to put all of your assets at risk.
But before you apply for a hard money loan to buy a piece of commercial real estate, make sure you understand what you’re getting into.
Use our experience with access to over seventy-five lenders specializing in hard money lending. We will help you navigate the process from start to finish.
And remember, we’re here to answer any questions you might have along the way.
The application process usually takes less than five minutes.
To learn more about these options, please call us at (888) 653-0124 today!
Have Any Additional Questions?
FAQs for Hard Money Loans For Business
✔️ What Are Typical Terms for Hard Money Loan?
If you’re looking for hard money loans, you must know some basic loan terms. Here are the most common ones:
• Term–The length of the loan. Typically, these loans last between 6 months and two years.
• Interest Rate–This is the rate at which interest accrues over the life of the loan. Most traditional lenders offer rates ranging from 5% to 8%.
• Down Payment–This is the amount of cash you put down when applying for the loan. Some lenders require a minimum down payment of 10%; others may allow you to pay off the entire balance with no down payment.
• Points–These are fees the lender charges for processing the application. They range from 1 point (1%) to 7 points (7%).
• Prepayment Penalty–This is the penalty imposed on borrowers who prepay their loan early. Many lenders impose penalties ranging from 0% to 20%.
• Other Fees–Many other fees are associated with hard money loans. Some include document preparation fees, title insurance, appraisal fees, etc.
When considering a hard money loan, remember that two types of loans are available: purchase money loans and bridge loans. Purchase money loans typically finance the acquisition of real estate property, and bridge loans are used to refinance existing debt.
Bridge loans are usually offered at lower interest rates than purchase money loans. However, bridge loans carry more extended repayment periods.
✔️ What Are the Risk to Private Lenders?
Private lenders are individuals who lend money directly to businesses. They’re often called hard money lenders because they typically require collateral (such as real estate).
While private lenders offer some advantages over traditional banks, risks are involved. The most significant risk is that the borrower may default on the loan, which means the lender loses their investment.
To reduce this risk, private lenders usually require borrowers to pay a prepayment penalty fee. This ensures that the borrower pays off the loan early, reducing the risk of loss.
✔️ How Do I Structure a Hard Money Loan?
When deciding whether to use seller financing or bridge loans, consider these factors:
• Your cash flow needs.
• The type of property being financed.
• The length of the term.
• Whether you plan to refinance the loan after closing.
Conventional lenders can provide bridge loans but don’t always offer the same flexibility as hard money lenders. If your business requires immediate capital, using a hard money lender is best.
✔️ Is Hard Money Lending a Good Idea?
Hard money loans are outstanding for small businesses looking to expand or purchase equipment. They’re not available through traditional banks, and no credit checks are required. However, hard money lenders require collateral, usually real estate, to secure the loan.
This loan may be right for you if you own property worth at least 10% of the total amount borrowed. Otherwise, consider another financing option.
✔️ What Are the Example of Hard Money Loans?
There are two types of hard money loans: purchase money loans and bridge loans. Purchase money loans are used to finance the down payment on a home. Bridge loans are used to pay off existing liens on a property. Both types of loans are secured against the property being purchased.
Bridge loans are usually offered at lower interest rates than purchase money loans because there isn’t any equity involved. However, borrowers must be able to show proof of ownership of the property being financed. This includes title insurance, appraisals, and bank statements showing payments made on the property.
Purchase money loans require no collateral. Instead, borrowers use personal assets, such as vehicles, boats, motorcycles, and ATVs, as security for the loan. Borrowers may use these items as collateral to secure the loan.
Banks offer hard money loans, but only to qualified applicants. Private lenders provide hard money loans directly to borrowers.
✔️ What Is the Difference Between Hard Money and Private Money?
Private money refers to loans made through banks and credit unions, whereas hard cash relates to loans made directly between lenders and borrowers. The difference between these two types of loans is that private money requires collateral (such as real estate) and usually comes with better rates than hard money loans.
However, hard money loans aren’t just limited to commercial properties; they’re available for any property type, including residential homes, rental apartments, and vacant land.
When looking for a lender, avoid falling victim to loan brokers offering loans at inflated interest rates. Instead, find a reputable lender who offers competitive rates and terms.