When most of us refer to hard money business loans, we are talking about loans made by private lenders, rather than commercial banks. It may be referred to as "unconventional", but in some cases it is the best choice. There are many reasons why you might choose to go this route as it offers many advantages for the borrower.
You will not find a listing for hard money real estate loans in the yellow pages. On the other hand, you will see thousands of websites on the internet offering them. You should be very careful. There are companies that ask for up-front payment of fees associated with securing your loan, without any sort of guarantee concerning how long it will take or even if the loan can be made. Lots of people have been ripped off. So, be suspicious and check the company. You want to borrow money, not lose it to a scammer.
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The same warnings are applicable for those of you that are looking for any kind of hard money business loans. People who are looking for this kind of financing are often desperate. Con-artists rely on desperation to cause people to "act quickly", when it is usually best to take at least a little time to make sure that you are getting the help that you need. Because of the scams and the rip-offs, there are some financial experts that question the legitimacy of any kind of unconventional financing. They sometimes even deny that there is a need it.
The truth is that there are private lenders that offer legitimate hard money real estate loans and other services. These lenders fill in the gaps left by conventional banking requirements and red tape. They are typically short-term loans, but can be offered for an extended period of time. There should be no penalty for early repayment. And, the funds are usually available right away, as opposed to the months of waiting that are associated with conventional lending.
Hard money real estate loans work well for the investor that has found a great deal. The seller wants to close quickly. The property needs some work. The difference between the private lender and the commercial banker can make a big difference in the amount of profit the investor walks away with.
First of all, a number of closing costs accompany conventional real estate loans. The costs associated with private loans are lower. Completing a conventional loan will take at least a month, and oftentimes 2-4 months, especially these days. The seller may not be willing or able to wait that long. Another buyer with readily available funds may be just around the corner.
Banks typically will only lend the amount needed to pay the selling price. Private lenders may be willing to add in the estimated costs of repairing the property to insure a higher resale value.
Hard money business loans offer the owner an option to the high interest rates associated with credit cards or bank lines of credit. There are many cases in which a relatively large amount of money is needed quickly. For example, a piece of equipment needed to fulfill a contract breaks down weeks before the contract is to be filled. Delaying the fulfillment of the contract may mean less profit to the business owner.
Charging the equipment on the company credit card might not be an option for a number of reasons. The business owner knows that the income from the contract will be much more than the cost of the new equipment. A private lender offering hard money business loans may be the right choice. The money is usually available quickly and terms for repayment can be negotiated privately.
There are may be other advantages, unique to your personal situation. The ones mentioned here are just some of the major points to consider. The bottom line is, it is harder now than ever before to secure a loan from a bank...why not look into a hard money real estate loan instead?
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