Alternative financing is a way of creating financial solutions for businesses who have run out of options. There are many ways alternative financing can be secured – there’s a solution for almost every situation. There are many terms you might read about in alternative financing, and the definitions can be complex. One way we’ve helped create cash flow for companies over the years is hard money loans, and here we will define a little more precisely what that means.
A hard money loan, also called a bridge loan, is collateral-based. In this case, the collateral is the real estate owned by the business. Essentially, this loan allows a business access to equity tied to their real estate investments by letting them borrow against it. The loan is based on the value of the property, not the credit score of the borrower.
One advantage to this kind of loan is the speed in which the borrower is able to receive funds. Unlike traditional bank loans, a bridge loan requires less paperwork and has fewer hoops to jump through. This simply means it’s quicker for a business to get the cash, and start using it. When it comes to loan-to-value ratio, this type of loan averages 50-60%. A short-term financing solution, hard money loans are usually structured for anywhere from 12-36 months, and are typically interest-only.
Hard money loans are an excellent tool in business turnaround situations. They buy the company more time to correct what went wrong. Having the cash in hand that a bridge loan provides the opportunity to pay off other debts, increase profits, and extend the business’ longevity, giving them a chance to reestablish good credit.
If you want to explore securing a hard money loan for your business, we can help determine if it would be a good option for you.