Startups need a lot of money to run through an initial couple of years to sustain and beat the competition. They can approach a traditional bank for that matter but chances are high that the banks will reject such loan application, even if the business plan is prim and proper. It is for this reason all startups should consider having hard money loans in their portfolio.
However, in order to make the best of these loans, you will need to know when to opt for hard money loans instead of traditional lending. This will ensure that you do not borrow unnecessarily and fall into a debt trap from which you cannot come out easily.
Hard money loans are a very powerful tool. It will enable you to get the desired amount of money in quick time and you will not have to undergo a lengthy and tiring process for that either. All you have to do is pay a slightly higher rate of interest and origination fee in exchange as compared to any other traditional money lending sources.
They will not only give you fast access to the money but will also lend it in more favourable terms and conditions. Therefore, hard money lending is the way to go for the startups especially when you need a little bit extra through traditional lending sources are an excellent option for a few specific transactions.
Features of hard money loans
Whether you take out a loan to meet with the financing needs for your startup business from a traditional bank or any online sources like Libertylending.com or any other, each loan will have specific features, terms and conditions that you have to abide by.
Similarly, hard money loans will also have unique features that are ideally beneficial for startups.
- The time factor: Due to the shorter and less complicated lending process followed by the hard money lenders, you can close a deal quickly and get your money fast as compared to the traditional lending sources that typically takes months to complete a deal. All private loans can be completed in weeks, and sometimes it can be much faster than that. Some money lenders can deliver the funds in as less as three days instead of the normal time of three weeks. Therefore, if you have special needs, hard money loans are the best option to choose, provided you are well-qualified to get it.
- The yield factor: If you need to make an investment that potentially has a much higher yield in quick time, there is nothing better than the hard money loans to avail. The cost of these loans may be a bit on the higher side but the fact that these loans are safe, stable and secure makes it a much better and reasonable choice eclipsing the high-cost factor. If you measure the yield of hard money loans with that of conservative financing from a bank or credit union you will see that the private lenders will give you more flexibility and the fund that you need to acquire to gain higher potential returns. Therefore, the few extra points of interest that you have to pay for hard money loans are a much more reasonable expense compared to the profits you stand to earn.
- The investment factor: When you avail hard money loans, you get a better investment opportunity. This is extremely helpful if you want to make an investment in an asset. All traditional lenders will typically look at the appraised value of the property that you want to invest in but the hard money lenders will look at the value of the property after you upgrade it. This actually increases your chances to get the loan. Moreover, the value of the assets after rehabilitation will obviously be higher than its initial appraisal and therefore, you stand a better chance to get a larger loan amount from the hard money lenders. This will, in turn, increase your returns on investment as you can use the equity to do more and better deals in the future.
Another and probably the most important factor that makes hard money loans a popular and essential choice for startups is the eligibility factor. When it comes to traditional financing from the banks and other financial institutions, it seems to qualify for the loan is the biggest hurdle to overcome, especially for a startup that has very little to prove about its worth having no previous track records.
Therefore, hard money loans are perfect choice for startups as they can get the loans even if there is no previous track cord or anything in it that might disqualify them from getting a bank loan since the bank officer has to literally “check all of the boxes” before giving the green signal to disburse the loan.
Private money lenders, on the other hand, will look at ‘you’ carefully to ensure that you are able to repay them the loaned amount. However, the key word here is “YOU.” They will often ignore things that traditional banks and other credit unions will surely look into such as:
- The global cash flow that you may project in your business plan
- Your total debt level and how good you are in managing them and even
- Your credit scores.
They will be more concerned whether or not you are able to make an adequate down payment and look at the risk in lending you the money before they give the nod.
Summarizing the benefits
In the end, to summarize why every startup should partner with hard money lenders it can be said that they will provide a powerful impact with their wide and extensive network. You will be benefited from such a relationship with the hard money lenders due to the easy commissions on loans, fast disbursements, lower turn-down a prospect and a better opportunity to close any purchase transactions.
Just make sure that you fulfil the eligibility criteria that they do have though it is far more relaxed than the traditional banks and credit unions.