Hard money loans mean different things to different people. In fact, some business owners even use completely different terms to describe them, such as asset-based lending or bridge financing. All of these things refer to the same type of loan: a short-term loan that is designed to help companies get needed capital quickly. One of the most common questions that small business owners have is whether this type of financing is risky.
How Safe Is Bridge Financing?
Any type of financing has inherent risks for both the lender and the borrower. The lender is at risk of losing all of the money offered. Borrowers may end up with debts or poor credit ratings. In the case of asset-based loans, there’s also the risk of losing whatever asset is used as collateral.
It’s important to understand that these risks apply to all loans, including ones from “safe” institutions such as large banks. However, as long as businesses make payments in a timely manner, there’s really nothing to worry about.
The major difference between bank loans and alternative financing is that bank mortgages usually offer 25 years for repayment. Bridge loans have shorter terms, generally just a year or two. They’re designed for business owners to buy items quickly, resell for a profit and use the money to pay off the loan.
How Common Are Hard Money Loans?
These factors are probably why hard money loans are relatively common in the world of business. Real estate companies use them regularly to purchase and resell properties.
Corporations turn to bridge loans to improve cash flow, speed up inventory purchases and make business operations more efficient. Retailers use bridge financing to adapt to seasonal increases in ordering, keeping up with consumer demand and making more money than they would otherwise.
What Are the Advantages of Hard Money Loan Options?
Conventional mortgages are great for some situations, but they can be a major hassle in others. For one thing, banks have high credit score requirements, so it’s usually a challenge to qualify. Above that, the vetting process and credit checks can take months. Real estate businesses don’t have that kind of time to wait before purchasing a property.
Hard money loans are fast and simple. They use the property for purchase as collateral for the loan. There’s no need for business owners to use their own company assets. Credit requirements are low and it only takes about a week to get approved. That way, the business can get started on lucrative projects ASAP.