If you’re looking to begin or expand a venture in commercial real estate, a hard money loan may be able to help. Keep reading to learn more about this financing option.
What Is a Hard Money Loan?
A hard money loan, as explained on The Balance, uses the property the borrower already owns as collateral. That means lenders focus less on factors like credit history and income and more on the value of property in the borrower’s portfolio. In terms of commercial real estate, this means a relatively new investor with only one piece of property can use that to make obtaining other real estates easier.
The Specifics of Hard Money Loans
Generally speaking, hard money loans are short term in nature. Their application and approval processes are usually much faster than those of traditional loans, meaning they are ideal for situations in which the borrower needs to move quickly to snatch up a property.
Additionally, hard money loans have a very high level of flexibility, meaning lenders can tailor each loan to individual borrowers, depending on their needs and circumstances. Hard money lenders often have to deal with fewer government regulations than traditional banks, adding to their ability to work with a range of clients.
Using a Hard Money Loan
A hard money loan can be a very effective tool in commercial real estate. As mentioned earlier, it can help newer investors who do not have the credit history or income needed to obtain traditional loans grow their venture. After using a hard money loan to become more established, borrowers can switch to other sources of financing. Another tactic is to continue using hard money loans to build a portfolio of properties: Each new property can serve as additional collateral, opening up the amount of funding available from hard money loans.
If you found this article helpful, be sure to check out Aspen Commercial Lending’s other blog posts!