The current credit crunch has put a vice like grip on the world of finance. Private money is still available and hard money loans are one way to access the money you need to survive these tough times.
Liquidity is the key to finance. Assets can be valuable, but they do not really help if you need to spend money. Hard money loans file this specific financing niche. These loans convert your illiquid assets into cash you can use.
Cash is king. This is true for both businesses and personal finance. You cannot pay the bills without it. Many of us are asset wealthy, but cash floor. Nothing is more frustrating since you cannot spend an asset.
Hard money loans often sound like asset based loans. They are similar except hard money loans are easier to get because the lender is willing to overlook your poor finances and focus only on the value of the asset.
A traditional lender will not lend money to a business or person that has a valuable asset, but poor revenues or overall finances. The problem is the bank cannot justify the risk to regulators, particularly in this market.
With the threat of risk comes the promise of profit. Nothing ventured, nothing gained as they like to say. While a hard money lender is willing to take on the risk of your situation, they expect to seriously profit from doing so.
With hard money loans, profit comes in the form of points. A point is equal to one percent of the loan. It is not unheard of to pay 10 points or more up front on your hard money loan.
Given these high costs, you probably are wondering why anyone would go with one of these loans. In many cases, it is a matter of perspective. Essentially, many businesses or people use these loans to buy time.
Assume I have a business in a building I own. Business is not good, but I forecast that it will pick up in three months. I need money now. My building is free and clear. I cannot get a traditional loan because of poor cash flow.
How good does a hard money loan look now? If I can make it another three months, I will survive the down period. Paying a big cost up front may very well make sense in exchange for buying that time.
It goes without saying that the hard money loan is tailored to specific circumstances. This is not a loan for the first time home buyer. Still, it can provide critical financing for tough situations.
About the Author:
Read more articles by Dan Gibson about hard money funding at CommercialLoanStop.com.
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