It appears that soft money is hardly available: because banks have tightened their lending practices and qualifications, commercial bank loans now are often much costlier and more difficult to acquire. A hard money loan may be the best option if immediate cash is needed because it’s not necessarily based on personal income or credit score, but the value of the asset. Hard money can be for real estate financing and also for other types of projects or problem-solving regardless of economic conditions. Interest rates are independent of the federal bank rates, and in general, are perfect for temporary solutions. Hard-money loans also may be a good solution when commercial borrowers are in a financial pinch when a property is incomplete or not marketable because of current economic conditions and need money fast.
Hard money lenders will always request an Executive Summary: essential information that indicates the loan amount, description of the problem or need, how the money will be used, description of the subject property such as type, number of units, square footage, appraised or estimated value and photos, and short loan term requested (one to two years usually). If the hard money loan is based on receivables and not commercial real estate, prepare a personal financial statement and provide a history of the business, including when it was founded, the purchase price and how it was funded, additional invested funds and equity. And if applicable, list current investors, the board of directors, the management team and the number of employees. Also, the Exit Strategy: indicating whether the business or property will be sold or refinanced for the payoff at the end of the term.
Determining the reputable-ness of a commercial hard-money lender is simple: look at the fees. If they’re outlandish, that’s a red flag. The fees charged should be reasonable administrative and processing fees agreed upon prior by both parties and indicating that a financial solution exists. In addition, reputable companies will offer various financing options to structure a funding solution exceeding the current conventional market. These are alternatives to hardly soft money.
Nice article.