Mention hard money and bridge loans and you are talking about an industry few people know a lot about. Most people do not realize how much the hard money industry has changed over the last 50 years. It has evolved into a niche industry serving a particular type of clientele. Hard money is not necessarily exclusive, but it cannot be obtained by anyone for any reason.
Below are some of the typical uses for hard money and bridge loans. Needless to say, hard money is not available for purchasing primary residences, cars and boats, and so forth. Lenders tend to be very choosy about the projects in which they invest.
Commercial Property Investment
Commercial property investment makes up the bulk of the opportunities many hard lenders invest in, according to Salt Lake City’s Actium Partners. Commercial property is attractive because it offers the kind of value lenders are looking for. Bear in mind that hard money lending is based on collateral value rather than the borrower’s ability to demonstrate a strong financial history.
Investors looking for hard money to obtain commercial properties might be interested in:
- office buildings with proven lease potential
- multi-unit apartment buildings
- retail or flex space in suburban environments.
The possibilities are pretty much endless when you are talking commercial property investment. Bear in mind that this is different from residential property investment.
Residential Rentals and Flips
Although Actium Partners doesn’t get involved with residential rentals and flips, many hard money lenders do. In fact, there is a certain segment of the hard money industry that focuses exclusively on these types of projects. They lend to real estate investors who either purchase rental homes or make their money on the fix-and-flip market. There is not as much money to be made on each loan, but lenders make up for it in volume.
Hard money can be a particularly good tool for helping a company expand. A lender might make a loan to help a company set up a second location across town. A loan might be made to help a business acquire one of its competitors. Whatever the case might be, lending for business expansion must still be secured by some sort of collateral. That collateral could be real property, business equipment, or any other type of hard asset.
Managing Existing Debt
There are times when companies turn to hard money as a way of managing their existing debt. For example, you might have a business with an outstanding debt instrument scheduled to mature within the next 60 to 90 days. Company owners may want to re-negotiate the debt to extend it for another 12 months. If the lender is unwilling, hard money could be obtained to pay it off. Meanwhile, the company buys itself 12 more months to secure traditional financing.
Bridging Two Transactions
Just as the bridge loans of 20 years ago helped residential home buyers purchase new homes while selling their existing homes, bridge loans can be used the same way in the commercial arena. Hard money lenders frequently offer bridge loans as a way to cover the financial gap between two transactions. Bridge loans tend to have the shortest terms in the hard money arena.
The beauty of hard money is that lenders have so much discretion about how much they lend and to whom. They tend to be a lot more flexible compared to traditional banks and credit unions. They are faster in terms of approval and funding, and they are willing to look at projects that banks would never even think of entertaining.