Asset-based lending or, hard money lending, is when a private entity such as an individual or group of individuals use a readily sellable asset, like a house, as collateral for a loan. This kind of lending can open up your finances to a lot more possibilities compared to your traditional bank loan.
Let’s start by explaining how private hard money lending is different from the loans you get at a bank. Understanding these differences will help you understand if an asset-based loan is best for you.
- Bad credit? No problem.
A huge benefit to borrowing from hard money lenders is that bad credit won’t stop you from getting a loan. Hard money lenders understand that credit isn’t always the key factor in determining the trustworthiness of a potential borrower. This of course, is not how it works at a bank.
- Bank Money vs Private Money
A big difference to keep in mind when comparing hard money lending to the traditional loans people get at a bank, is that most of the time, the bank isn’t really giving you their own money.
Banks are creating money through their loans, a process known as the monetization of debt. Also, banks are only required to have a fraction of the money they are lending you, meaning they’re not personally invested like private hard money lenders.
- Paper work, paper work, and more paper work.
Banks require you to have all kinds of complicated paperwork and if anything is out of order, they won’t give you the loan you need. You don’t get the money you need, or at least you won’t get it when you need it the most.
Hard Money Loans
Borrowing from Hard Money Lenders is a much easier process that doesn’t go overboard with the paperwork. It means getting the money you need faster, and the flexibility you need for your unique situation.
- Hard money lenders work with you.
As a private hard money lender in Florida, we have had plenty of experience working with both private individuals and companies when unique circumstances have presented themselves. A lot of the time, a disruption in a company’s cash flow has to do with rapid expansion. You could leverage the assets you have to work with private hard money lenders to get the money you need when you need it.
When should you use an asset-based loan?
Typically, we work with 1-year loans. This quick turnaround is a special characteristic of private hard money loans, that lends itself best towards specific needs.
- Considering a fix and flip?
This kind of lending is valuable to people looking to fix and flip a house. The major benefit of using a hard money loan here is the speed in which you get your money. Things move fast in real estate and waiting 30-60 days for a loan puts you at a major disadvantage. Moving on deals fast helps you to secure the best closing costs.
- Renovations and Rentals
You should also keep in mind that most banks are not going to want to deal with renovation projects or rentals. A hard money loan is a great option for a fix and flip project and the additional costs that renovations entail.
- Cash Refinance
Private hard money loans are also a great option for those who need a large amount of capital in a short amount of time. A cash refinance could help you get the money you need to invest in a new business venture, invest in more real estate, or even stave off foreclosure.