The current credit crunch has put a vice like grip on the world of finance. Private money is still available and hard money loans are one way to access the money you need to survive these tough times.
Do not know what a hard money loan is? It is essentially an asset based loan. Many people and businesses own assets that are valuable, but have no liquidity. Hard money loans change that.
Cash is king. This is true for both businesses and personal finance. You cannot pay the bills without it. Many of us are asset wealthy, but cash floor. Nothing is more frustrating since you cannot spend an asset.
So, how does this loan differ from basic loans? The difference is found in the fact that the lending party is ready to loan money when the borrower is not in great shape financially. Unlike a traditional bank, the lending party is not scared off by the financial risk.
Risk is a factor in all financial loans. Banks cannot take much of it, but private money lenders can. Hard money loans carry a lot of risk, so most banks will not give them. Private money lenders have no such concerns.
Risk, however, comes with a price. While hard money lenders are willing to give you money when you are in a tight spot, they expect to be rewarded accordingly. This reward can be a princely sum.
Simply put, these loans are very expensive. You are used to being charged one or two points on mortgages. A hard money loan will start at four points and move into the teens depending on the risk involved.
You are probably shocked at the staggering cost involved in these loans. Yes, they are pricey, but in many situations the price is not much compared to the potential expense of not getting financing.
As a matter of perspective, consider this business. It own expensive manufacturing equipment and has a 50 million dollar order coming in next month. Currently, it cannot make payroll and needs help.
How good does a hard money loan look now? If I can make it another three months, I will survive the down period. Paying a big cost up front may very well make sense in exchange for buying that time.
Obviously, these loans have their place in the finance market. With things being tight in the traditional finance markets, however, hard money loans are becoming more popular every month.
About the Author:
Learn more about mixed use hard money loans from Dan Gibson at CommercialLoanStop.com.
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