Are Private (Hard Money) Loans Right for You?

Are you looking to expand your business? Whether you are in the real estate sector looking to add another property to your portfolio or in the manufacturing industry eyeing up a new piece of machinery, it’s important that you choose the right loan product.

Private loans, also known as hard money loans, offer a variety of benefits for borrowers, making them a viable financing option to consider. In this article, we’ll cover some of the top benefits of private loans, including faster turnaround times, expanded purchasing options, asset-based lending opportunities, and the power of flexible repayment schedules.

Remember, financing is unique to each business. It’s always best to consult with a qualified commercial loan broker when determining the right course of action for your business. Contact our team at MPI Capital Group, Inc.  today for a personalized consultation.

Faster Turnaround Times

The first borrower benefit of private loans is faster turnaround times. Unlike a traditional financial institution that takes weeks to close, a private money lender can close in a few days. If you are purchasing fast-moving real estate or taking on a time-sensitive project, a quick turnaround time is essential.

Faster turnaround times don’t mean that your commercial loan broker is skimping on due diligence. In fact, private money lenders evaluate your loan candidacy based on a variety of factors. The main difference is that private loans aren’t always required to follow the stringent requirements that traditional financial institutions must abide by. 

Moreover, one of the main factors contributing to quick closing times is streamlined documentation. Private money lenders have well-defined qualification processes, which focus on the asset’s value and potential rather than taking a deep dive into your personal financial health. This lowers your documentation requirements and gives you the ability to close quickly.

Expanded Property Options

Traditional financial institutions are hesitant to lend on properties that require significant rehab or are outside of their normal property type, like large commercial buildings or condemned properties. When you work with a private money lender, this isn’t the case.

Private money lenders understand the opportunities in hard-to-finance properties, which is why they are willing to take on more risk. Most investments are eligible for private money, including equipment to grow your business and real estate that needs repairs.

Moreover, some private money lenders bundle estimated rehab costs into your loan. Let’s say you are buying a property worth $500,000 that will need about $200,000 in repairs. Instead of taking a loan out for just $500,000, some private money lenders allow you to secure up to $700,000, giving you the funds needed to make repairs without digging into your own pockets.

Asset-Based Lending Opportunities

Private lenders also allow you to avoid red tape, basing lending decisions on more than just your credit score or debt-to-income ratio. In fact, most private loans are collateralized with the asset being purchased. For example, if you are purchasing a multi-family residential property worth $400,000, your lender will back the loan with that property.

This means if you default on your payment, the private money lender receives rights to the property. Asset-based lending gives you more flexibility, without requiring you to put up personal assets as collateral or guarantee the loan. Not to mention that this makes hard money loans a great option if you have a lower credit score.

Flexible Repayment Schedules

Flexibility is key for growing businesses, especially if you are purchasing a piece of real estate that needs significant repairs. Private lenders can put together a customized loan repayment schedule, such as monthly interest-only payments or balloon payments at the end of the term. This can give your business the necessary flexibility to rehab a property and generate cash flow before payments are due.

For example, let’s say you are interested in flipping a residential building. As you pour money into the project, you most likely aren’t generating any rent income. Instead of paying the commercial loan incrementally, you can focus on rehabbing the property and listing it for sale. Once the sale closes, you have the funds needed to repay your loan. The entire process maximizes your return and doesn’t require you to put up personal funds for the commercial loan.

Getting Started

Does it sound like you can benefit from a private money loan for your next purchase? Whether you are a new investor looking to secure a fast-moving property or a business owner trying to purchase a piece of machinery, commercial loan brokers that specialize in private lending should be your first stop. Reach out to our team at MPI Capital Group, Inc. today to learn more about getting started.