Counting Your Losses and Surviving for Another Day The Advantage of Hard Money Loans for Small Businesses


Hard money loans in california

Money has come to represent the best and worst of humanity throughout the years. While some insist that money is the root of all evil, I would instead suggest that the lack of money is the principle drive for evils. Regardless of moral standing, we can all agree that the way modern banks operate in a broken system that takes advantage of the financially burdened and those of low socio-economic status. Sometimes it is necessary to bypass the system.

The Modern American Financial Crisis

The American market went into a significant decline starting in early 2006 in what is now referred to as the bursting of the house market bubble. This started a nearly six year long recession that we are just now leaving behind. Along with the decline in property values, many banks saw government-aided bailouts in what the government assumed would help stabilize markets. Instead banks survived to continue taking advantage of the typical loan recipient. Most home buyers enter into a 15 or 30 year mortgage while they build equity; the median amount of home equity for people below the age of 35 totals at $20,000. Small business owners looking to take out a business loan must be in business for at least two years and have at least $250,000 in annual revenue to be considered; on top of this they must also have good personal and business credit and have positive cash flow — this makes it nearly impossible for newcomers to develop their business. Due to the current financial state of the nation, many people may wonder how does a hard money loan work and how is it different from other loan options.

The Difference of a Personal Loan

Private investors are also known as hard money lenders due to their simplified loan process that often bypasses the need for credit checks. The cost of a hard money loan is a risk-reward analysis that each business person should make. Hard money offers higher interest rates and lower loan to value ratios; a hard money interest rate can start at 15%, 18%, or even higher figures. Most hard money loans are secured by a property that has 30% to 50% equity, thus the investor remains well protected throughout the process. By and large, a hard money loan has a higher interest rate, shorter duration and more risks associated with it; these loans are suitable for projects lasting from a few months to up to five years unlike a normal loan that can be for up to 20 years.

So How Does a Hard Money Loan Work?

When asking the question, “how does a hard money loan work,” one should consider their options. Hard money originally developed as an alternative “last resort” for property owners seeking capital against their equity; it is essentially a last ditch effort to recoup one’s losses and come out of hardship quickly. Chances are there are a number of private investors looking to distribute hard money loans in your area as real estate investment figures are expected to experience a sharp rise over the coming years. Consider your options, do the research, and decide if a hard money loan is the right answer for your business in these trying times.

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