| Before we go any further, let's make sure we're | | | | swift and will typically be as fast as the local |
| working from the same definition of hard money | | | | jurisdiction will allow.The basic scenario for considering |
| business loans.For the purposes of this discussion, | | | | a hard money business loan is when a business has |
| hard money business loans and hard money loans in | | | | exhausted its conventional financing sources and is |
| general, are typically secured by real estate.Because | | | | still short money to operate, expand, or just take |
| the lender is not usually concerned with the | | | | advantage of short term opportunities.Because |
| application of the funds acquired, I'm further defining | | | | repayment is usually required within a one to three |
| a hard money business loan as a source of funds | | | | year period, hard money business loans can also be |
| invested into a business operation.The lending criteria | | | | categorized as bridge loans.If you're thinking about |
| for issuing a hard money loan is primarily focused on | | | | whether or not to secure a hard money business |
| the equity held in real estate.Typical characteristics: 1) | | | | loan, consider the following points:>>> Can you |
| private lending sources, 2) short interest terms from | | | | generate an ROI? If you have good, profitable |
| one to three years, 3) up front fees on closing, 4) | | | | business in front of you that you can't bank because |
| short in duration, 5) use of funds not a focus, 6) | | | | a lack of short term capital, then a hard money |
| limited number of debt covenants if any, 7) interest | | | | business loan may be a solid option.>>> Do you have |
| only payments is quite common, 8) failure to pay | | | | an exit strategy? Remember that a hard money |
| results in sale assets to retire the debt.While hard | | | | business loan is effectively a bridge loan that you're |
| money lenders have their detractors, they serve a | | | | going to have to pay back in the near future.If you |
| very real and valuable purpose in the commercial | | | | can't create a cash flow scenario where full |
| financing market place.Pros and ConsPro - The | | | | repayment is possible at the end of the loan term, |
| application process for a hard money loan tends to | | | | then a hard money business loan may not be a viable |
| be considerably faster than a comparably sized | | | | option.>>> What are your alternatives? If your |
| conventional loan application.Con - Compared to | | | | alternative financing options are equity based where |
| conventional real estate financing through institutional | | | | you are giving up a portion of the future profits of |
| lenders, the cost of hard money loans is almost | | | | the business, a hard money business loan can allow |
| always higher.Pro - In many cases hard money can | | | | you to retain control of the business and keep the |
| be lower cost than cash flow financing facilities like | | | | related profits.>>> What's the impact on personal |
| subordinate debt and factoring.Con - Up front fees | | | | liability? If your alternative business financing options |
| also add to the cost of hard money business loans | | | | are high cost and still require a personal guarantee, |
| which can significantly increase the effective interest | | | | then a hard money business loan may actually be a |
| rate you're actually paying over a period of time.Pro - | | | | better option.>>> Can you generate enough capital? |
| As a bridge loan, these funds are normally | | | | If a hard money business loan cannot completely |
| outstanding for a short period of time so the shorter | | | | address your financing need, then it may not be a |
| the use, the lower the potential cost.Con - At the | | | | good fit.Sometimes business owners will use hard |
| end of the interest term, if an extension is required, | | | | money to buy time until they can acquire additional |
| but not granted, the loan needs to be paid out in | | | | capital to meet their entire financing need.The |
| full.Pro - From a cash flow point of view, an interest | | | | problem with this strategy is that hard money is not |
| only payment, even at a high rate, can still be less | | | | very patient, and if it takes longer to acquire the |
| strain on the cash flow.Con - Once you sign up for an | | | | additional funds than your cash flow allows, the hard |
| interest term, its the same as most fixed interest | | | | money lender will not likely postpone or restructure |
| rate terms whereby there is usually a 3 month | | | | your debt serving costs.Instead, if you fall behind in |
| penalty for early payout.Pro - Hard money can also | | | | your payments, they will likely realize on their |
| be extended against non real estate assets where | | | | security, which may put you out of business.Brent |
| real estate is still the primary security in the overall | | | | Finlay makes it easy to understanding business |
| security package for the loan.Con - If you fall behind | | | | financing. Learn how to locate and secure proper |
| with your payments, the foreclosure process can be | | | | financing for your business. |