Hard Money is a term used to describe loans that come with a higher risk than traditional loans. On the flip side, Asset Based Lending is whereby investors use their assets as security for a loan. However, the two types of funding are not so different – hard money can still be classified under asset based lending.
Why Do Real Estate Investors Prefer Hard Money Loans?
Hard money loans come with higher interest, but they still remain to be among the most beneficial financing options for those investing in real estate. The main reason why these loans are preferable is that the application and approval processes for hard money loans are much easier than those of traditional bank loans.
When getting a traditional bank loan, the paperwork involved is a turn-off for many people. The financial institution you are dealing with may require you to provide credentials on your credit score, cash flow, business licenses, balance sheets, and work experience, among others. The process is lengthy, too, which is why investors prefer to pay more to acquire hard money loans.
Hard money loans are ideal for real estate investors in different scenarios, some of which include;
When the investor does not have enough money to grab a lucrative investment opportunity
When the investor’s credit is recovering
When the investor wants to spend more time looking for new opportunities instead of raising capital
When the investor requires a higher amount than what the bank offers them
Real Estate Investors Going for Asset Based Lending
Lenders have learned how to have trust in assets, considering that both commercial and residential real estate industries have expanded significantly. The lenders are leveraging technology and other resources to get a better understanding of the assets. There has been noticeable flexibility in the rates because the lenders focus more on the property’s cash flow instead of the borrower’s credit score and personal income.
There has been a constant confusion between asset-based and hard money loans. While the former is gaining popularity, investors in the real estate industry prefer the latter despite its high interest rates. This is because hard money loans are fast and convenient to acquire. Talk to Commercial Capital Finance today for more details and any financial assistance you may require.