What Are Hard Money Loans?
Did you know you can put your business property or real estate property to work for you? With a hard money loan, assets such as real estate can be used to help fund purchases. In simple terms, hard money loans are a type of short-term financing that uses real estate property as collateral for the loan amount. They’re also called bridge loans.
Advantages of Hard Money Loans
Bridge loans offer several advantages compared to traditional long-term property loans:
- Fewer approval requirements: Because the amount of the loan is fully secured by the value of your property, lenders have less to lose if you can’t make payments. This means that your credit rating and financial history — while considered — are not as important as the value of your real estate.
- Faster approval process: Instead of waiting three weeks or several months to find out if the loan is approved or not, you can usually get approval for hard money financing in a day or two.
- Flexible lending options: Bridge loans offer a lot of flexibility when it comes to interest rates, term lengths, and payment types. For example, borrowers can make payments on interest-only or pay back part of the principal as well.
Why a Business Owner or Homeowner Would Apply for a Hard Money Loan
There are many reasons why a hard money loan can be the ideal solution to a financing problem. For example, if you find a piece of property that you absolutely love, you may not want to wait months to get bank approval. Instead of risking someone else buying your dream home, you could use the new house (or your old one) to take out a bridge loan right away.
Companies sometimes use bridge loans when they need emergency capital for unexpected expenses, such as large inventory purchases or seasonal payroll requirements. If fixing and flipping properties is what you do for a living, then hard money financing is an excellent tool for making money.
Whether your business is just starting or doesn’t have the best credit, bridge loans offer great financing possibilities on a short-term basis. They’re not designed to replace long-term financing, but they’re awesome for securing a large amount of capital in a short period of time.
To get started with hard money loans, the first step is to find a lender you trust. Make sure to ask questions about anything you don’t understand, such as interest rates and loan-to-value ratios for your proposed real estate. As you show your ability to repay this type of financing, you can often secure even better terms.