Things To Know About Hard Money Financing

If your business is in a position where you can not qualify for a traditional business loan, but need money for a project, or for any other reason, a hard money financing can be a way to go. Hard cash loans are not traditional, alternative sources of finance for small businesses such as real estate sector.

What is a hard loan?

A hard loan is a risky, asset-based loan used by companies that can not qualify for other types of loans to finance their business. When a project emerges in which a small business wants to invest, or when a company has used up its credit lines, they can turn to their hard cash loans for their needs. Hard cash loans are placed with retail investors, banks, mortgage lenders and even the Small Business Administration. Small business cash loans should only be used for emergencies due to their high interest rates.

How do you qualify for a hard money loan?

Hard money financing is not based on the creditworthiness of the borrower. Instead, they are based on the collateral that you can offer the lender. Your credit score is usually not considered. Only the collateral that you can offer to the lender will be considered for a hard loan. As a rule, the entire value of the collateral is not used. Instead, a mortgage lending rate is calculated for the hard loan. The mortgage lending rate is a percentage of the value of the property. If the collateral you offer for the loan is insufficient to secure the loan, you may need to provide personal assets to secure the loan.

What is a loan-to-value ratio?

A mortgage loan lending rate is calculated as the loan worth / estimated value of the property. The higher the ratio, the harder it is to get a loan.

As a rule, hired lenders only lend about 70% of the value of the property. The mortgage lending rate is a measure of the risk for lenders.

Depending on the rules imposed by that particular hard money lenders, they may lend 72% of the value of the property or not. If they do not borrow 72% of the project costs, the XYZ company can turn to another lender with heavy money.

What is the interest rate and other conditions for a hard money loan?

For coin loans, interest rates are higher than for traditional business loans. The reason is that hard-money loans are riskier than traditional loans. The other conditions for a hard-money loan are also less favorable than for traditional loans.

Interest rates can start at around 12% and rise up to 29%. Small businesses usually pay 4% to 8% points.70% loan to value is usually the maximum loan-to-value ratio a hard money lender will accept.

A balloon payment may be required somewhere along the way. The term of the loan is usually short - as short as 1-5 years.

Hard Money Lenders

Hard money lenders are individuals or companies that have funds available for investment. In order to be a hard money lender, they must be flexible and able to move quickly to take advantage of the credit options available in the market. They are not limited to the strict criteria of traditional business loans and traditional business sources.

Even if you have to go through multiple lenders to find a lender that meets your needs, all you have to do is do a simple search on the Internet to find hundreds of companies that deal with hard money loans.

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