Just as with residential housing, maintaining a company’s physical location can be achieved in one of two ways: renting or purchasing. Many businesses rent space because they do not have the financial resources to buy. Yet, buying commercial property can boost a company’s bottom line significantly.
Do you operate a business in rented space? If so, have you ever considered buying? There are financing options above and beyond SBA loans. One of the most attractive is a hard-money loan from a private lender like Salt Lake City’s Actium Lending.
Most Actium’s loans go to real estate investors throughout Utah, Colorado, and Idaho. The firm occasionally lends to businesses as well. Obtaining new property for a business is a primary reason for Actium to get involved.
The Basics of Hard Money
Hard money is essentially a form of private lending. It can be offered by individuals, groups of investors, or firms like Actium Lending. And because it is private, lenders work under a different set of regulations. Their regulatory framework allows them greater flexibility. Here are the top three reasons real estate investors love hard money:
1. Less Strict Lending Requirements
Private lenders do not have to be as strict with their lending requirements. For example, nearly all hard money loans are asset-based. That means approval is not based on a borrower’s creditworthiness, history, etc. Rather, it is based on the value of the property being acquired.
2. Fewer Documentation Requirements
The asset-based lending model makes it possible for lenders to approve loans without turning over every stone and looking around every corner to fully understand a borrower’s financial position. The result is a significantly lower threshold for documentation. Simply put, hard money lenders need very little documentation compared to banks.
3. Fast Approvals and Funding
Rounding out the list is the speed at which private lenders can approve and fund loans. Where a business or real estate investor could wait months for a traditional bank loan, hard money lenders can get things done in a week or less. Unbelievably, Actium Lending has been known to approve and fund in as little as one business day when circumstances warrant.
Leveraging Hard Money to Buy Business Property
With the basics of hard money out of the way, you might now be wondering how you could leverage it to buy business property. Remember that hard-money lending is based on the value of the collateral you offer. The property you purchase for your company would be the collateral.
As long as the targeted property has enough value to cover the amount you are asking to borrow, the lender can find a way to make a loan work for you. But you need to bring some things to the table:
- Down Payment – Hard money might be easier and faster to obtain, but you will still need a down payment. Be prepared for a higher down payment compared to traditional bank loans.
- Knowledge – Any hard money lender with a track record of success is going to want to see that you know what you are doing in terms of your business. Be prepared to demonstrate your knowledge.
- Exit Strategy – Hard money loans come with extremely short terms of 6-24 months. You will need a reasonable exit strategy for paying off your loan at maturity.
In addition to short terms, hard money loans are also known for higher interest rates and lower LTVs. Just know that going in. As long as everything is in order, you have a pretty good chance of financing your company acquisition with hard money.
