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Hard Money Loans
Hard Money loans, also known as Bridge loans, are short-term financial solutions that provide cash until long-term financing comes through. In real estate, these loans can be used to purchase and renovate a new office, retail space, industrial facility or multi-family residential building while continuing to utilize and operate within your existing property. For manufacturers, these loans can be used to upgrade equipment so products can be improved. In fact, funds from a hard money loan can be applied to any business expense agreed upon in the contract so long as you can meet the balloon repayment at the end of the loan term.
OVERVIEW
Hard money financing comes in many forms. Regardless of which form is chosen, each product has similar qualities. They typically have short terms and are secured on collateral. That could mean property, equipment, or any other valuable asset. Because of their short terms, some loans come with higher interest rates than their long-term counterparts.
Secured loans are usually easier to get and less expensive since the lender has the option of collecting assets from the borrower if they fail to repay. Unsecured loans require documentation, a good credit score, and strong repayment history. Interest rates on unsecured loans are typically higher to mitigate lender risk.
Because private lenders aren’t subject to the same rules and regulations that banks are, they can be more flexible with their terms. Since they’re not required to conduct the same background research, loan applications can be approved more swiftly. That means money in your pocket in a few days instead of in a few months. When you need to strike while the iron is hot, a hard money loan could work for you.
LOAN HIGHLIGHTS
Hard money loans come with short terms and high interest rates.
These loans can be approved quickly.
Funding can be secured on a variety of assets.
These loans are meant to be repaid with a balloon payment at the end of the term or replaced by long-term financing.
PROS
- A borrower’s low credit score doesn’t necessarily disqualify them.
- Hard money loans come in a wide variety of financial products.
- Unsecured loans are available to borrowers with a strong history of repayment.
CONS
- Interest rates are typically higher on short-term products.
- Most loans require some form of collateral.
- Many loans have limited-use restrictions.