There are times when small businesses need funds. It’s not a question of why, but how. When the business needs money for payroll, emergency expenses or large orders, working capital isn’t a luxury; it’s a necessity. Are hard money loans a good financing option for these situations?
What Are Hard Money Loans?
Hard money financing is a type of asset-backed lending. In other words, the loan approval process depends a lot on the value of some business assets used as collateral. Every lender has different requirements for collateral, but the three most common types of business assets are real estate (property), equipment and inventory.
The collateral is a way of reducing risk for the lender. For example, if you own a piece of machinery worth $50,000, the lender may be willing to provide a loan of $30,000–$35,000 with few requirements. The lender has some protection against defaults, but your business also benefits by getting funding immediately.
How Popular Are Hard Money Loans?
Many businesses in all industries apply for hard money financing each month. This type of loan offers many benefits and provides working capital for any need. You can use the funds for equipment repairs, inventory, hiring costs, real estate purchases, property improvements and countless other goals.
Different types of companies often use ABL financing in different ways. For example, real estate companies generally use this type of loan, also called a bridge loan, to close quickly on good properties. The loan may also cover real estate remodeling so the business can maximize profits.
Retail stores and sales companies also turn to hard money loans, but as a way to improve cash flow. With smart financing, it’s easy to purchase inventory regardless of the time of the month or how long customers have to pay. By buying in bulk, businesses can also get a greater discount and save money that way.
What Are the Advantages of ABL Financing?
One of the main reasons businesses use hard money loans is to avoid the strict requirements of traditional loans. Many banks have a huge list of requirements, including high credit ratings and excellent revenue. Small businesses may not meet these qualifications.
With ABL financing, though, many small business owners can qualify for excellent interest rates and large funding amounts. Short-term loans can help owners reach goals that count. When used for things that produce revenue quickly, hard money loans are a great fit for modern businesses.