Using Hard Money for Commercial Real Estate Investments

If you need a quick loan to put a down payment on a property, a hard money loan can be a good option. This type of financing is most often used to fund real estate investments. AS the name implies, hard money loans can sometimes be difficult to obtain, but many lenders, including HML Solutions, have begun offering less-stringent criteria for hard money loan eligibility to make them accessible to more people.

What Is a Hard Money Loan?

A hard money loan is a type of creative financing, which is a financial solution in which an investor provides a borrower with a non-traditional loan. Hard money loans are often harder to qualify for because they typically have high interest rates and strict terms for eligibility.

However, because hard money loans require little to no documentation, the borrower receives money from this financial solution almost instantly. This fact makes hard money loans ideal for real estate buyers who need funding for down payments.

What Are the Benefits of Hard Money Loans?

Hard money loans have two primary benefits. The first advantage of this financial solution is flexibility. Because hard money loans come from private parties or investors, the terms for this avenue of financing are flexible. Loans can easily be tailored to meet the individual needs of the borrower, which allows people with less-than-perfect credit histories to qualify for hard money loans.

The second advantage of hard money loans is speed. Instead of having to wait for financing to be approved, you can receive money from a hard money loan in as little as a week. This speed can make a huge difference in getting the property you want when it becomes available or missing out on it because you can’t afford the down payment.

What Should You Look For in a Hard Money Lender?

When applying for a hard money loan, it’s important to find a lender who meets your needs. Consider the following criteria to decide which lender to work with:

  • Loan Terms: The specific terms of a loan, including the specified payback period, have a direct impact on your profit margin over time.
  • Loan Amount: Various lenders offer different loan amounts, so choose a lender with a debt ceiling higher than the amount of the loan you need.
  • Interest Rates: Hard money loans have higher interest rates than other types of financing, but the rates vary among lenders. Choose to work with one that offers lower interest rates.

How Can You Find a Hard Money Lender?

You can find many resources online that list all of the benefits of various hard money lenders. Some of the websites compare lenders from individual states, while others compare lenders from all across the nation. Reputable websites will include all of the information you need to decide when lender is right for you.

Apply For a Hard Money Loan From HML Solutions Today

A hard money loan is a useful type of financing if you need a quick down payment for a real estate property. HML Solutions offers this financial solution with competitive terms, so if you think a hard money solution is the right type of financing for you, contact us today to apply.

Using a Bridge Loan To Buy Your Next Home in South Florida

When you are buying a home, you have a few different options for financing. The most obvious of these is a conventional mortgage with either a fixed or variable rate. However, there are some circumstances in which this may not be the best choice or even possible. In some cases, using a bridge loan is the better option. Understanding this useful form of financing and its benefits will enable you to make well-informed decisions about buying a home in South Florida.

What Is Bridge Lending?

Bridge financing is essentially a type of loan that helps to close the gap between your current financial situation and your next loan. In other words, it is used to help secure long-term financing. It is used for real estate purchases, renovations and refinancing. Additionally, there needs to be real estate as the collateral on the loan.

Typically, in a real estate purchase, bridge financing is used to cover all or part of the costs of a new property while selling your current property. So, if you are moving primary residence, you could use bridge lending to help with the costs of the new home while you sell your current home.

These loans are typically very short and have high interest rates. However, their total cost is more contained than you may expect because of the short payoff time.

How Does Bridge Financing Work?

As mentioned, bridge financing is asset-backed. This means that it is secured against the property you currently own, almost always real estate. For residential real estate deals, this will typically be a loan secured by your home equity.

There are a few ways that it can work. You can use the loan as a way to pay off your current mortgage, allowing you to secure financing for the new property. Alternatively, you can use the loan for a down payment on the new property.

In either case, you will be used your equity in your current home to help make buying the new home possible. Typically, the bridge loan is paid in full once the original property has been sold.

How Do Bridge and Hard Money Loans Differ?

Hard money loans are very similar to bridge financing. In fact, bridge lending is often considered to be a subset of hard money lending. However, there are some key differences.

First, hard money loans are financed by private capital. In other words, they are not offered by banks or other traditional lenders. This allows them to avoid some of the restrictive requirements that banks have to follow. Bridge financing can be funded through private capital but may also be offered by a bank.

Second, hard money lending is more flexible in how you use the money. Conversely, bridge financing is used solely for real estate. Furthermore, while both are short-term loans, bridge lending is particularly intended for situations in which it can “bridge the gap.”

What Are the Benefits of Bridge Financing?

This is a valuable form of financing in many situations. These are a few of the reasons you may consider using bridge lending:

  • Fast: One of the main characteristics of bridge financing is that you can secure a loan quickly. Typically, the turnaround is a couple of weeks. In some cases, it can be just a few days. This means that you can secure the financing you need substantially faster than the months needed to close a traditional mortgage.
  • Avoids the Need for a Contingency Offer: When you use bridge lending to help with your purchase of a second property, you can avoid needing to make a contingent offer. In other words, the seller can be confident that your offer will be moving forward. This can put you at a significant advantage compared to people who need to sell their homes to fund their offers.
  • Helps You Avoid Delays: When you use bridge financing, you can avoid the delay of needing to sell your home. If there is a time-sensitive opportunity available, you can move forward with it. In turn, this can potentially mean saving substantial amounts of money or getting the perfect home due to your fast funding.

How Can Bridge Financing Help With Buying a Home?

There are a few ways that bridge lending can help you with your next home purchase. As mentioned, you can either use the money to pay off your current home mortgage or use it to help with the purchase of your new home directly.

In the case of paying off your current mortgage, you have a few options. You can refinance your current mortgage with some additional money from your home equity (a cash-out refinance). This will allow you to pay the down payment on the mortgage for your new home. Alternatively, you can simply pay off your current mortgage and make the down payment another way. In certain circumstances, this will help you to secure a more favorable mortgage on the new home.

Alternatively, you can use bridge financing to cover the new property. Depending on your home equity situation, you can either borrow a down payment on the new home or potentially buy it outright.

No matter how you use your bridge loan, there is one major upshot: you will be able to secure financing for the new home without selling your current home. For the vast majority of homeowners, getting the down payment to buy a new home requires selling their current home. In turn, this requires a contingency offer on the new home. Since a contingency offer can fall through if you are unable to sell your home, it is less attractive to a seller.

Therefore, using a bridge loan can help you make a more competitive offer. Depending on the market, you could save some money or even just have a chance at getting your offer accepted.

What Are the Alternative Loan Options?

Of course, there are many other options beyond bridge financing that can help you with buying a new home in South Florida. These are the three major options available:

  • Cash Down Payment: If you have some cash on hand, you can make a regular down payment on your new home. Traditionally, lenders have asked for 20% down. However, there are many more flexible options available. In some cases, if you make a smaller down payment, you may find yourself needing to pay for private mortgage insurance, which can increase your monthly payments.
  • Home Equity Line of Credit: If you have some equity in your home, you could use a home equity line of credit to cover your down payment. A HELOC allows you to borrow against the portion of your home that you own. It functions a bit like a credit card in that you can use it for all sorts of reasons, and you have a limit that you can borrow against in whatever amount you need.
  • 80-10-10 Loan: This is sort of line a hybrid between a cash down payment and bridge financing. If you want to secure a loan but don’t have 20% to put down, you could put down 10% and borrow the additional 10%. This is two mortgages (one covering 80% and one covering an additional 10%). You can then pay off the second mortgage when you sell your current home. The difference between this and bridge lending is that the 10% loan is secured against the new home, not the original one.

Should You Take Out a Bridge Loan?

Bridge financing can be a valuable tool for many people trying to buy real estate. It has a lot of benefits, especially for people who want to secure a deal or who aren’t ready to sell their home just yet. However, it also has some drawbacks.

On the one hand, you could potentially save money on your new home. Having a non-contingent offer means that you can usually offer a little less and still be competitive. Additionally, you will be able to move more quickly on opportunities, meaning that you may be able to snatch up a good steal.

Conversely, using bridge financing could mean that you end up paying your original mortgage, the bridge loan and the new mortgage all at once. Plus, due to the short terms, bridge financing tends to carry high monthly payments (although some are designed as interest-only payment models). If you are unable to sell your original home in a timely fashion, this can become an untenable situation.

You will need to carefully evaluate your options. Getting the timing of selling a home and buying a new one to line up properly can be challenging. When things don’t work out, you may end up sinking time and money into a deal that simply falls through. So, consider using bridge financing but make sure you understand how it works.

Get Started With Bridge Lending on South Florida Real Estate

Discover more about bridge loans today. With HML Solutions, you could get the right deal on a bridge loan for your new home in South Florida. Contact us to learn more.

How Bridge Financing Helps Small Businesses in West Florida

What is the best type of financing for your business? Many small business owners would be tempted to respond, “The one that has the lowest interest rates,” but that’s not always the right answer. In reality, the best financing is the one that meets your company’s needs at the time. In many common situations that small businesses face, the solution is bridge financing.

What are bridge loans? They’re a type of short-term financing based on business assets. You receive funding based on the value of collateral such as inventory, equipment or real estate.

Traditional Funding Can Take a Lot of Time

One of the problems with conventional business loans is that the approval process can take significant time. We’re not talking about a few days or a week: Traditional loans can require several months before your company finally gets the green light.

Why is the approval process with economic development loans so excruciatingly slow? There are several steps that lenders need to follow. In the case of loans backed by the Small Business Administration, for example, it’s necessary for banks to check the applicant’s qualifications against SBA requirements.

During the application process, lenders have to check the application, look at your financial records, perform a credit check and meet to discuss underwriting questions. It also takes time to perform legal steps needed for the loan agreement, closing and other needs.

The Purpose of Bridge Financing

Fortunately, small business owners have several funding options available to help out in the meantime. That’s what bridge funding is all about. The purpose of a bridge loan (also called gap lending) is to “bridge the gap” with capital while you’re waiting for other sources of revenue or financing.

Ways Bridge Financing Helps Small Business Owners

Bridge loans may not have the same interest rates as long-term loans, but when it comes to flexible, short-term funding, nothing is better. There are many ways you can use this type of loan for your business:

  • Real estate projects: A common way to use a bridge loan is to close on a residential or commercial property while waiting for long-term, low-interest financing to get approved. That way, you don’t miss out on the property of your dreams.
  • Cash flow problems: Sometimes, businesses run into problems paying bills because clients haven’t paid their invoices yet. You can avoid credit problems by taking out a bridge loan in the meantime, then paying it off as soon as your customers pay you.
  • Business opportunities: Use bridge loans to take advantage of volume-based inventory purchases, special discounts on equipment or other opportunities.

The Advantages of Bridge Financing in West Florida

Bridge loans offer incredible flexibility. You can get approved and receive funds in about a week. This type of financing can cover 100% of the cost of equipment, inventory purchases, real estate, emergency needs and other business essentials. At HML Solutions, we’ve been providing this funding option for West Florida businesses for a long time. Contact us to see the benefits for yourself.

Understanding the Difference Between Private Money Loans and Hard Money Loans

Hard money loans and private money loans are two different types of alternative financing. When a business has capital needs that traditional lenders such as banks can’t meet, alternative financing can provide a practical solution.

It’s fairly common for modern businesses to run into this situation due to the strict and often exaggerated requirements many banks have for loan approval. In those cases, having an outside lender available can keep business operations running smoothly and allow owners to boost company growth.

Choosing the right type of alternative financing matters. The more you understand the pros and cons, the better equipped you are to make a great decision and save money. What are the differences between hard money loans and private loans? When are they a good choice for your business?

What Are Hard Money Loans?

Hard money loans are also known as asset-based lending. Sometimes, they’re called bridge loans. This type of financing relies on a business asset to act as collateral for the loan. Many business assets can be collateral: property, inventory, heavy machinery, construction equipment, vehicles and (sometimes) jewelry. Real estate is the most common type of collateral used for ABL financing.

How Does Asset-Based Financing Work?

With a hard money loan, the main factor that affects your ability to get a loan is the asset you choose and its value. This collateral needs to be able to cover the cost of the loan as well as any insurance, closing costs or other fees. It’s also important for assets to be something valuable that is relatively easy to sell.

Next, the lending company has the asset appraised. The loan offered is based on a percentage of the item’s as-is value. You decide if the amount covers your needs, and sign the necessary paperwork if you agree. Funds are transferred to your bank account quickly and you can spend them as you see fit.

What Are Private Loans?

Private lenders make up a large category of non-traditional financing. Angel investors, venture capitalists, friends, family members, businesses and other sources are types of private lenders. They’re different from conventional loan sources such as banks both in loan types and loan requirements.

A private loan can have virtually any kind of terms imaginable. Some family members may give you a smaller loan with no interest whatsoever. VCs and angel investors may want some type of equity in your business in exchange for money. Other private lenders offer short- and long-term financing but with a range of interest rates.

What Terms Do Private Loans Carry?

Private loans don’t have any specific definitions or guidelines to follow, aside from following U.S. laws regarding lending. There is a huge range of repayment terms, fees, and interest rates with this type of loan, and the specifics mainly come down to who you decide to work with.

What Are the Advantages of Hard Money Loans?

Many businesses use hard money lending because of the benefits it provides. You can evaluate the same factors for your business.

Fast Financing for Business Emergencies

Sometimes, a business needs working capital right away. For example, a piece of equipment may break down and need repairs. If this is one of your primary sources of revenue, you can’t afford to wait weeks or months to get money for it. The same situation can happen if you have a slow month and you need some help covering payroll or taxes.

Hard money loans can get approved in about 5–7 days max, and sometimes in just a few days. That’s much faster than traditional loans that require weeks for underwriting, credit checks and meetings. You can get working capital to cover business emergencies without problems.

Fast approval is also important when you need a bridge loan for real estate. If you come across a great property from a bank auction, you need financing quickly to close on the real estate before other buyers can get their hands on it. Many house flippers rely on bridge loans to make solid profits from house sales.

Simple Application Process and Qualifications

Another advantage of ABL financing is that you don’t need to dig up tons of financial records. Often, the documents you mainly need are related to the business asset you’re choosing as collateral. There’s no credit check to worry about.

Compare that to traditional loans (and many private loans) and you can see why this option is so popular with small business owners. Most banks want to see years of profit-and-loss forms, tax returns and other financial documents, in addition to hard credit pulls. It takes time to gather all those records, and filling out the application can be a major headache.

Low Credit Score Requirements

One of the biggest differences between hard money loans and traditional loans are the credit rating requirements. With a bridge loan, your credit score doesn’t matter. Alternative lenders don’t even run a credit check with this type of loan. It’s not necessary because collateral reduces the risk of lending.

This is very different than the credit history requirements of most banks. They often require a nearly spotless credit history and a high credit rating. Sure, businesses can get excellent interest rates if they have excellent credit, but if not, banks won’t even consider the application.

Flexible Loan Terms

Compared to traditional loans, hard money financing is amazingly flexible. With conventional lenders, it’s your company that has to adapt to the terms of the loan you’re offered. You don’t get much of a say in interest rates, repayment terms, down payments or additional fees. You either have to accept the loan agreement or find another lender.

With ABL financing, the opposite is true: Hard money lenders are happy to adjust the terms of the loan so it’s more comfortable for your particular business operations. Seasonal businesses can get repayment terms that fit the ups and downs of their schedules. You can negotiate for things such as a longer loan length, no prepayment penalties or lower monthly payments.

No Rules for Spending

When you use business assets to get a loan, you don’t have to worry about rules from banks telling you how to use the money. You simply receive a lump sum right away that you can spend however you want. There are many things you can take care of with extra working capital:

  • Inventory purchases
  • Operating costs
  • Website development
  • Digital advertising
  • Real estate purchases
  • Remodeling costs
  • New computer systems or equipment

This is different from bank mortgages or small business loans. Those financing options come with very specific limits you have to follow, sometimes requiring you to submit receipts showing how you spend the funds.

Pros and Cons of Private Loans

How do private loans stack up against hard money financing and traditional loans? Let’s start with the advantages:

  • Funding for investments that are too risky for banks
  • Flexibility for loan terms and monthly payments
  • Low credit score requirements
  • Ability to spend money the way you want
  • Possibility of very low interest rates

The truth is that there is a huge range of possibilities with private lending. If you get a loan from a friend or family member, you may not pay much in interest, which can save you a lot of money in the long run. At the same time, private lenders often don’t have a huge pool of funds to draw from, so your loan may be on the small side.

Risks of Private Lending

A large downside of private money is the issue of trust. It’s wise to be careful when approaching any loan, but you need to be especially cautious with private lenders. Otherwise, you may end up with a loan that looks good at first but has hidden penalties in the fine print that leave you with huge debts. If you decide to go this route with friends or family, make sure to put everything in writing to avoid any disagreements in the future.

What Are the Terms for Hard Money Loans?

The specific terms depend on the asset you choose, its value and the repayment schedule that works for you. There are many options for repayment terms, generally lasting from six months to a year. ABL financing is designed as a short-term funding solution. As for the total loan amount, or LTV ratio, this is usually around 60%–80% of the asset’s as-is value, though this range can vary with the market.

Hard money loans have a higher interest rate than long-term loans, but they’re also much easier to qualify for. Businesses that have trouble getting approved for traditional loans can often get ABL financing without issues. Many large and small businesses in Florida like this type of alternative financing because of its incredible flexibility.

How Can You Decide If Hard Money Loans Are Right for Your Business Needs?

Like any type of financing, asset-based loans have pros and cons. A trustworthy hard money lender should take the time to answer your questions and explain the terms clearly. At HML Solutions, our financing professionals have been helping Florida businesses for a long time. That’s why we have a great reputation. Contact us today to learn more about this flexible financing solution.