8 Things to Research for Using Hard Money Loans for Business
When you are considering using hard money loans for business, there are several things that you should research before making a decision. Hard money loans can be an excellent source of funding for your business, but they also come with a number of risks and considerations. There are eight things to research before deciding whether or not to use hard money loans.
1. The Lender’s Reputation
You want to work with a lender who has been around for a while and built up its reputation for being trustworthy and transparent. This means checking out reviews and testimonials about the company online, talking to past clients, and asking for references.
2. The Lender’s Fees
Hard money lenders often charge origination fees of 1 % to 5% of the total loan amount and other fees such as application fees and prepayment penalties. Make sure you understand how much will be going toward these fees before deciding whether it makes sense for you.
3. Interest Rate
The interest fee on a hard money loan is usually higher than the rates charged by banks and other traditional lenders because it’s a riskier type of loan. The interest rates on these loans range from 10% percent to 15%, depending on the amount and term length.
4. The Term Length of the Loan
Hard money lenders will typically offer loans with terms ranging from 12 months to 3 years. Some may offer shorter terms, but it is unlikely that they will extend past five years unless you have an exceptionally strong track record as a borrower.
5. How Much Collateral Is Required?
Hard money lenders require a certain amount of collateral in order to secure their loan. If you don’t have enough collateral, then it’s unlikely that they will give you a loan. In most cases, it’s at least 50% of the value of the proposed loan amount, and sometimes even more than that.
6. What Kind of Documentation Do They Require?
Hard money lenders require different types of documentation from borrowers, depending on their requirements and the type of loan they offer. You should know what types of documents you need to provide before you start your search for hard money loans.
7. Do They Provide Guarantees or Insurance Against Default?
Some hard money lenders offer guarantees or insurance against default in case the borrower does not pay back on time or at all. Suppose this sounds like something that would be beneficial to you, then you’ll want to find out whether any particular lender offers it before applying for a loan with them.
8. Know the Risks
Hard money loans can be risky for both parties. For example, if you’re unable to pay back the loan, then you’ll lose the property, and your personal assets could be at risk. Also, if the borrower defaults on their loan, the lender may foreclose on the property — even if it’s not worth enough to cover the amount owed in full.
Once you have researched all of these, you’ll be more prepared than most to use a hard money loan for your business. This means a quicker time getting funded and making money in your business.
