Hard money lenders can give businesses a quick cash infusion to capitalize on opportunity or to weather hard economic conditions.
October 28, 2010 – Fredericksburg, VA – (http://tinyurl.com/2alah45) Smart business owners and finance professionals know that there are alternatives to the cumbersome and invasive process of applying for a bank loan for business capital. Hard money lenders are the ones they turn to when they need fast, flexible and hassle-free business financing for any reason.
Another of the potent asset-based finance techniques for business owners, hard money business loans are loans that are typically collateralized by real estate. Hard money lenders base their lending decision primarily on the protective equity in the property rather than the creditworthiness and financial statements of the business borrower.
Hard Money Commercial Loans Are Everywhere
According to Mike Lieber, president of AEGIS Financial Solutions, Inc., and creator of the new business financing web site Smart-BusinessFinancing.Com (http://www.smart-business-financing.com/), there are hard money lenders in all parts of the U.S. that will make loans between 50 and 70 percent loan to value. Loan to value, or LTV, is the percentage of the current property value the loan amount represents. So for a $1 million property, a $700,000 loan would be 70 LTV. Loan amounts, rates and terms are usually tied directly to the LTV.
“If you control between 30 and 50 percent of the equity in a property, most hard money lenders will loan you money. The greater the equity, the better for the borrower,” says Lieber.
The Good News & Bad News
First the bad news: Hard money business loans are quite expensive when compared to traditional commercial real estate financing. The good news is their speed (funding in days, rather than months), low documentation requirements, and perhaps most importantly in terms of business financing, flexibility.
Why would companies need hard money business loans?
In general, commercial hard money is used in situations where either the borrower or the collateral (or both) fall outside of the underwriting guidelines of traditional commercial lenders. A bank, for example, bases its lending decisions on the credit worthiness and income of its borrower and how marketable the collateral for the loan is in the event that the borrower defaults and it has to repossess and sell that collateral. If any of these factors do not conform to the policies of the bank or the many federal and state regulations that govern what a bank can do with its money, the loan application will most likely be denied – even if the loan is a very prudent and potentially profitable one.
In other cases, borrowers might elect to bypass the long and cumbersome process associated with traditional commercial real estate loans. This can make good business sense when short-term costs are outweighed by the potential for significant profit in the longer-term.
Lieber’s Smart-Business-Financing.Com offers a few examples of situations that may warrant a hard money loan:
• Quick money needed for a time-sensitive transaction
• Commercial bridge funding (90 days to 1 year) to relocate your business
• Credit problems, tax liens, bankruptcy financing, etc.
• Partially completed construction
• Property acquisition and renovation
• Loss of bank financing
This short list illustrates nicely the two main uses of commercial hard money: to capitalize on opportunities and solve difficult business financing problems.
Lieber is careful to point out that commercial hard money is not intended as permanent financing.
“Generally, hard money lenders will make loans for a year, and some will renew loans in good standing for a second year,” he says. “But the short terms and above market interest rates mean you will be well-served by having an exit strategy or a permanent financing plan — before taking a dime of hard money, if at all possible.”
About AEGIS Financial Solutions, Inc.: Since 1998, AEGIS Financial Solutions, Inc. has been helping people solve financial problems and get money when they need it most, using the vast resources of the non-bank cash flow industry.
Mike Lieber, President
AEGIS Financial Solutions, Inc.
88 E. River Bend Road
Fredericksburg, VA 22407
PH: (540) 548-2270