The Difference between Asset Based Lending vs. Hard Money
This is a common question and often misunderstood explanation. The truth is that Hard Money Loans traditionally are asset based lending. As an overall blanket statement, asset-based lending is a business loan secured by collateral or assets. The term “hard money” pertains specifically to loans that are riskier in nature than traditional loans, and thus incur higher interest rates.
In this article we’ll cover these topics related to Asset Based Lending:
- A Hard Money Loan Benefits Compared to Traditional Financing
- Asset Based Lending as an Alternative
- Asset Based Lending for Real Estate Investors
Why Real Estate Investors Use Hard Money Loans
Hard money loans are significantly more expensive than traditional bank loans. Why then do people seek hard money? Despite its very high-interest rates, hard money can be an extremely useful financing option for real estate investors. It is significantly easier to secure a hard money loan than a traditional bank loan.
Financial institutions are often very stringent in demanding things like personal credit score and history, personal information including work experience and education, cash flow statements, balance sheets, financial projections, and business licenses to name a few. This abundance of paperwork, information, and requirements immediately turn off many otherwise qualified investors.
Not to mention, the entire process is a very lengthy one at best. So, for the sake of speed and convenience, some investors choose to pay a much higher rate to obtain hard money.
A Hard Money Loan may offer Benefits over Traditional Financing
1. When an investor requires a fast closing (for short deadlines) or is looking for a more efficient process
2. For investors with recovering credit
3. For investors lacking enough cash to capitalize on lucrative investment opportunities
4. When an investor needs more money than the bank can offer
5. For investors fed up with wasting time raising capital instead of finding new opportunities
As a note of caution, hard money lenders have an unfortunate reputation for being loan sharks.” There have been numerous cases of banks hoping to have their borrowers default on their loan and foreclose on their underlying real estate. Some loan shark lenders scam investors by taking their security deposit without ever planning to fund the loan itself.
Asset Based Lending as an Alternative
If you don’t qualify for traditional bank financing or need fast money for a deal you can’t pass up, hard money is usually the next option, but at a much higher expense. Now, there is a better alternative. CoreVest is a private, asset based lender for real estate investors. The company offers better rates than traditional hard money loans, with many of the same benefits.
The truth is that hard money loans are asset based lending.
Typically, asset based lending for real estate needs is a riskier venture for the lender, resulting in rates ranging up to 18% in annual interest. But those days are (or should be) behind us.
Asset Based Lending for Real Estate Investors
Due to the larger scale of the commercial and residential real estate industry, lenders are able to get more and more comfortable with the assets themselves than in previous times.
Nationwide lenders such as CoreVest are able to utilize resources and online technology to gain a much greater and in-depth understanding of the real estate properties themselves. Instead of focusing primarily on personal income and credit score, the company focuses on the cash flow of the investment properties—allowing more flexibility on rates as it becomes more comfortable with the underlying collateral (the asset) itself. As asset based lending for real estate properties becomes more popular amongst institutional investors, the industry will adapt to faster funding procedures.
The company has a fast and streamlined process, offers a non-recourse product, and doesn’t need a personal guarantee tied to credit. What’s more is that as a private, direct lender, there is no cap on the amount of which we can lend, allowing investors to leverage their real estate portfolios like never before.
CoreVest is a leading provider of financing solutions to residential real estate investors. We provide attractive long-term debt products for stabilized rental portfolios as well as credit lines for new acquisitions.