HARD MONEY BUSINESS LOAN

Many small business owners have equity in their primary residence, investment real estate or business owned property that they would like to use to help support their businesses. Now with a Hard Money Business Purpose Loan they can use a hard money loan to qualify, even with poor credit or unverifiable cash flow. This can open many doors when small business owners are rejected from banks and conventional mortgage lenders.

Consumer Loans versus Business Purpose Loans

Due to usury laws and the Dodd-Frank law, there are very strict government regulations that limit the costs and mandate certain qualifying factors such as, debt to income ratio’s, for any consumer using the primary residence as the collateral for a mortgage. These usury laws are necessary. They provide good protection for consumer mortgages (consumers financing their owner occupied homes). These protections are very much needed for consumers financing or refinancing their homes. Not only are these laws not good for business owners; these usury laws do not apply to small business owners. When a business owner chooses to use the equity in their primary residential homes to borrow funds and use them for their business they can. But the distinction between a business owner getting a consumer loan versus a business purpose loan is very precise and the penalties to lenders very high. For this reason most Hard Money Lenders and Private Money Lenders will not use a primary residence as collateral for a loan.

When to Use a Hard Money Business Loan

Hard Money Loans and Private Money Loans are expensive and to be used when you have exhausted conventional options for financing. This means you have been turned down by your bank and /or conventional mortgage lender. They also have not qualified for traditional business lending. The reality is that though Hard Money Loans are expensive, they can be less expensive than many other options and effectively save business owners money.

These loans are less expensive than merchant cash advances and most revenue based financing. Hard Money Loans can even be cheaper than credit card financing. Merchant cash advances, revenue based financing, some term business loans and credit card financing are short term in nature. These financing types are not designed to run your business. These financing programs are meant to help you meet an urgent need or take advantage of a lucrative business opportunity. Hard Money Business Loans can help not only meet short term needs but also consolidate higher cost short term financing options to reduce costs and improve cash flow.

Qualifications for a Hard Money Business Loan

Whether a small business owner has been denied a loan for poor credit or unacceptable cash flow, they may still qualify for a Hard Money Business Purpose Loan. There are options for no minimum credit score and options requiring a minimum score of 640 or higher. For owner occupied residential property the key is the majority of the proceeds must be used for business purposes. Therefore, we use 51% of all funds requested as the minimum threshold. This means no more than 49% of the loan proceeds can be used to pay off an existing mortgage.  For example; if the loan amount is $100,000 then the most to be used to pay off existing mortgage is $49,000. $51,000 must be used for business purposes. The minimum loan is $100,000 and the maximum loan is $5,000,000.  The maximum loan to value is 65%. There must always be an acceptable exit strategy as these loans are short term. The term is usually 12 months.  Acceptable property for Hard Money Business Purpose Loans are: owner occupied residential 1- 4 unit properties, 1 – 4 unit residential investment property, residential and commercial investment property, business occupied or investment commercial property.

For more information call 888-407-6767 or email louisj@fbcfunding.com

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For Real Estate Investors who who need to purchase or refinance residential or commercial investment properties with no red tape that can close quickly the private money mortgage program is for you. There are no minimum credit score requirements. No income is stated for the borrower. This is truly Asset Based Lending.

Private Money Mortgage

Just what it sounds like. A Private Money Mortgage is from private investors not institutional lenders. The private investors create their own guidelines and are primarily concerned with the safety of their funds and secondly by the return on their investment. This is done by offering a lower loan to value and a higher interest rate than convention lending. The greater collateral reduces the potential risk associated with a borrower not qualifying for conventional financing.

In addition to ensuring adequate collateral for the risk, a private money lender will also consider the income generated by the property. This income or lack thereof can be sometimes overcome by a lower loan to value. This again increases the collateral and reduces the risk to the lender.

The Property

The Property is the primary criteria. What is the AS IS Value of the property. Is the Property income producing and can the income from the property cover the mortgage payments. Conventional lenders focus on credit, income and experience, but the private lender is primarily focused on the collateral.

As a rule of thumb, income producing property will have a maximum loan to value of 65%. Non Income producing properties will have a maximum loan to value of 55%. But there are other aspects of the  property that is important to the Private Money Mortgage Lender. These would include, location, type of property, location, condition, location and marketability to name a few.

Location

What state the property is located in is very important. As these are private individuals the proximity of the property to them is important. Most private lenders will only lend locally, or sometimes will have different terms locally and be more conservative when the property is in a different state or region.

Property Type

Usually the highest loan to value is given to residential or residential based properties, like multi-family and mixed use properties. Office Buildings and Retail are next in the ladder of being more secure and less risk. The highest risk property types are special purpose properties like Movie Theaters, Churches, etc. The greater the risk, the lower the loan amount.

Location

In addition to what state the collateral is located in, most lenders prefer urban and suburban locations as they are more easily sold. In areas the number of people in a MSA is low, there are fewer potential buyers, especially for unique property types. That is why lenders sometimes avoid rural areas completely.

Condition

This should go without mention, but many borrowers do not understand that if a property is in poor condition it is harder to sell at market price and it shows lack of pride in ownership. This may be an indication of unseen problems.

Location

Location, Location, Location!!!

The where the property is affects marketability, value, environmental and other risk factors that will always be considered as lending risk. This affects, rate, loan amount and even whether the loan will be even offered.

Marketability

How long does a property take to sell? That is key for the property owner and lender. Ultimately the Private Money Mortgage Lender is concerned that if they have to foreclose on a loan it will be on a property that can be easily sold to recoup their investment. This is partially reflected in the value, but also relative to the risk of time the Private Lender will consider.

Finally, all factors considered The Private Money Mortgage offer financing for properties that generally would not qualify for conventional financing.

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