Five Important Tips When Seeking Hard Money Loans
Sometimes you have to get creative to come up with sufficient funding for a new investment. The most successful of investors started from almost nothing and found unique ways to fund their business projects. One of the most common forms of funding is with hard money loans. If you are considering going the private money route, make sure you follow these suggestions when seeking a hard money loan.
Understand exactly what a hard money loan is
Before you take out a hard money loan, it is important to know what it is. Generally speaking, hard money loans offer higher interest rates and lower loan to value ratios. Hard money interest rates can start at 15%, 18%, or higher. They usually come in the form of private lenders. For this reason, each hard money loan term requirements are going to be different, depending on what the specific private lender requires.
Seek out private lenders
If you have decided that a hard money loan is right for you, you will need to seek out private lender options. While there are many of them out there, they are not always easy to find. You also have to understand that they are constantly getting inquired about lending to small businesses. It is important to go to the meeting prepared. Make sure you have a good business plan and plenty of equity to secure. Most hard money loans are secured by a property with 30% to 50% equity, so the investor is well protected. Be prepared to put your project up at risk in order to raise the necessary funds.
Create a repayment plan
It is crucial that you create a repayment plan as soon as you secure a hard money loan. Duration or payment period for a private loan is often shorter when compared to the traditional loan which can usually go from 1 year up to 20 years, while private loans can only be granted with duration of up to 5 years. Because you have less time to pay off the loan and more risk of losing your investment property, you will want to establish a strong repayment plan immediately.
Choose the right harm money lender
Avoid going with the first hard money lender that you find. There are many of them available, and as stated before, each one has different lending terms. Choosing the first one does not get you the best deal and can end up costing you more money in terms of higher interest rates. The repayment period might also be shorter, making it more difficult to produce a profit. Depending on the type of business you are entering into, it can be very hard to gain any type of profit within the first couple years of operating the business. Consult with numerous hard money lenders and then weight the pros and cons of each one.
Grow in phases
If you have never operated a business or been approved for a hard money loan, it is going to be difficult to get approved for a large amount of money. Instead, attempt to grow your finances and business in phases. Begin with a more affordable project. Get a hard money loan and quickly pay it back. The experience and the repayment record will only help you to obtain higher loans, later on. You might even get to use the same hard money lender and they might be more willing to give you a better loan term.
Hard money loans are often used when an investor does not have sufficient funding available for a project. The loans come with higher interest rates and shorter repayment plans when compared with traditional loans. Yet, they have higher turn around rates, which is more appealing to business investors. Make sure you have done your research and understand the ins and outs of obtaining a hard money loan for your business needs.