The Advantage of Hard Time Loans
With the 2008 economic crisis many organizations and institutions have restricted their budgets. If you have a time crunch on a project and need financing, you might want to consider buying time with hard money loans.
As the subprime crisis impacted all areas of finance, this resulted in the credit crunch. Regardless of the merits of your application, it will not be easy to find the loans needed to execute projects. Many hyped about projects have collapsed because liquidity could not be maintained and nobody works for free.
As we head into 2009, things are not looking a lot better. The housing market has retreated in values. While the majority of subprime loans have already expired in defaults, a new round of option ARM loans are coming due to reset. The fear is homeowners will be unable to refinance these loans given the loss in equity and will also be unable to afford the new payments. This catch-22 will result in more defaults and more strain on banks. Strained banks, of course, do not lend. This is really bad news for those in need of project financing or, in truth, any financing.
If you are facing problems in obtaining fund for a project in the current year, then looking at the traditional loans may not be a viable option. If the banks continue to be under stress as expected, you are merely setting yourself up for disappointment. Instead of losing your business, you might consider trying to buy time until this economic mess passes.
Predicting economic turnarounds is not a piece of cake. Still, this mess we are in has to turn around at some point. Most people believe that the end of 2009 will see an improvement in the U.S. economy. The more pessimistic ones suggest that the situation will improve sometime in 2010. Hence, it follows that if you can manage to put temporary financing in place for these two years, your business will sail smoothly. This can be easily done through hard money loans.
A hard money loan is a form of bridge financing. It is made by private investors for a fixed period that is negotiable. It costs more in the form of points, but does not affect your credit score and revenue projections because the loan is secured by real property. In short, it is an asset based loan that can be used to buy time.
Let’s say you have an option on a piece of land for a project. While the development you have planned for the land is bound to prove profitable, the credit crunch means there are no funding sources and you are coming up on a deadline. A hard money loan can be used to meet that deadline and provide funding you can use for the next couple of years until the banks start lending again.
Hard money loans are often called bridge loans, but they are different. If you are in a really tough situation, a hard money loan can be the solution whereas a bridge loan is less appropriate for a last minute deal.