The Truth About Hard Money Lending

When you have to decide on financing, it’s vital to have all the information. Good lenders are upfront about what you can expect. They should be happy to answer your questions, pointing out both pros and cons of different options.

This gives you confidence that the lender is trustworthy. The fact that a loan has advantages and downsides isn’t surprising after all. Every type of financing has some positive and negative aspects to consider. This guide tells you the unfiltered truth about hard money lending.

What Is Hard Money Lending?

A hard money loan is a type of asset-based lending. This means that it involves collateral. This kind of financing is also called a bridge loan, private money loan or ABL financing option.

With this type of financing, the capital you receive is based on the value of the asset you use as collateral. For example, if you have a piece of equipment worth $70,000, you could get ABL financing for a percentage of that value.

What Is the Purpose of Hard Money Loans?

ABL financing is extremely common in the real estate industry. It’s a way to get financing quickly to purchase properties, cover the cost of improvements and sell for a profit. The nature of hard money lending makes it faster and simpler than traditional loan options.

Other businesses use bridge loans for a short-term infusion of capital. For example, a sales, retail or distribution business may turn to ABL financing to purchase inventory quickly. Once the inventory sells, it’s easy to pay back the loan and still have plenty of profit left over.

Corporations — such as hospitals — frequently use asset-based lending to improve their cash flow. They get funds right away while waiting for insurance companies to pay patient bills. That way, the corporations have enough money to cover expenses such as payroll or lease payments.

What Are the Pros and Cons of Hard Money Loans?

The main advantages of ABL financing are speed and simplicity. It’s possible to get approved for a real estate purchase in about 7-10 days. Compare that to traditional loans, which can take two or three months to go through. Plus, hard money loans have low credit score requirements thanks to the collateral.

The main downside is that ABL financing costs more than traditional loans. With the higher interest rates, these loans aren’t designed for long-term purchases. They’re only for short-term projects that you can complete quickly and generate significant profits from.