What You May Not Know About Alternative Lending
The Biz2Credit Small Business Lending Index recently reported approval rates for small business loan applications hit a record high of 27.6% at big banks in June 2019 while approval percentages from regional and community banks increased to 50% for the first time this year.
It’s always encouraging to hear positive news about higher approval loan rates from U.S. banks. It reflects more confidence in the economy, increased consumer spending, and simply puts more capitol in the pockets of small business.
So, with this positive news, is there still a popular space for hard money lenders for small businesses, especially those in the real estate market looking for various real estate development loans?
The answer is simple: Yes.
The Biz2Credit Small Business Lending Index also reported that alternate lending is still a viable source of funding for those who have “less than a stellar track record of paying back their debts and alternative lenders often provide funding to businesses that the banks reject.”
Hard money lending is significantly different from borrowing from a bank. They are available for business or investors when an additional loan from a bank is not an option for any financial reason. In many cases, especially in the real estate market, using a direct lender is common for select businesses. Direct lending is resorted to when more working capital is required quickly and for the short term. Merchant cash advances from direct lenders are also available pretty much for the same reasons.
Here are three reasons why you want may inquire about a hard money loan when there are no other lending options available:
Hard money loans are based on collateral rather financial records or credit scores (although some direct lenders do require a credit score). Plus, they can be closed easier and faster without the detailed lending criteria from bank. In fact, select hard money lenders may or may not do a credit check, require income reports, or even charge application fees.
So, a hard money loan can save time and allow you to receive funds when your business needs it. Additionally, over time, if needed, once you have developed a relationship with the hard money lender, future loans may be able to be approved quicker, thus providing an alternate revenue stream for your business.
More Flexible, Less Complicated
Alternate loans are based on individual business needs and the underwriting processes of that of a bank are not applied. So, you may be able to reach better terms regarding flexible re-payment schedules or even negotiate certain terms.
Going through a direct lender (whether you’re requesting a commercial building loan or a residential real estate development loan) means you may be able to sustain a large project or other business needs when capital begins to run low. Hard money loans commonly have terms from 12 to 36 months (which can be flexible) and means the loan is paid back in a relatively short period of time.
When and Why Do You Need One?
There are many financial reasons why businesses resort to hard money lenders over a bank. Poor credit history and ratings or over extended loans and line of credits can hinder any business. These are just two of the several reasons why a bank would decline to write a loan for you. This is essentially where hard money lenders come in to potentially provide the funding you require.
The reasons to resort to direct lending may be viable for your business needs. Hard money lending can help sustain your business’s projects should you need to meet your payroll, invest in new equipment, pay late invoices, cover basic operating costs, the list goes on. In addition, with forecasted or expected future revenue streams (which should always be 100% secured before going to any hard money lender) you and (the hard money lender) know the loan will be paid back within the set terms and conditions.
If you feel you require an alternative loan for your business, be sure to take a series of preliminary steps. Always consult extensively with reputable agencies and ensure you understand all the stipulations of the interest rates, collateral required, terms and conditions of paying back the loan, and of course, any ask detailed questions that you may have.