It is hard to find success in real estate investing without ample capital. Fortunately for investors, asset-based financing offers a way to get funds quickly. If you need a loan to invest in real estate, asset-based lending might be faster and easier than taking a loan from an institutional bank. This article covers everything you need to know about getting money for your next real estate investment (without getting buried in paperwork).
How Real Estate Asset-Based Lending Works
Asset-based lending is based on the borrower’s liquid assets and credit score. Unlike many other types of loans, asset-based lending for real estate does not depend on the borrower’s credit score or salary. Asset-based loans are bridge loans, which means the term length will generally be 12 to 24 months. Borrowers can receive this type of financing to make an investment or buy commercial property.
For this type of financing, the borrower uses their collateral (real estate) to receive cash from a hard money lender. The hard money lender will weigh all of the following when making a loan:
- The borrower’s current real estate assets
- Equipment
- Inventory
- Accounts receivable
The borrower’s current properties are assessed based on their prospects for generating cash flow. Lending based on potential revenue creates more risk for the lender, especially because the borrower is not borrowing on personal income or liquid assets. As a result, the interest rate for a hard money loan is likely to be higher than the interest rate from a traditional bank.
Benefits of Asset-Based Lending for Real Estate
This arrangement is ideal for borrowers with all or most of their money tied up in real estate or various projects. It takes more money to continue buying property for a growing real estate business, and asset-based lenders give access to that money. Asset-based financing might be a strong option when you need cash to continue growing your real estate business.
Asset-based financing helps real estate entrepreneurs grow in the following ways:
- Overcome Bad Credit or a Foreclosure: Traditional banking institutions might not give you a loan if your credit score isn’t high enough or you’ve had a foreclosure. Asset-based lending gives you another way to secure the funds you need.
- Maximize Your Borrowing Capacity: Financial leverage goes a long way in the real estate industry. Asset-based loans give you another avenue to additional funding, so you can keep building your business without using your own money.
- Grow Your Real Estate Business: It takes capital to grow a real estate investing business. When scaling up or growing fast, you might use all of your existing funds in a hurry. Real estate asset-based lending can help you continue to build your business without waiting for more revenue.
- Get Funds Faster: Asset-based loans are normally faster than traditional loans. They require less paperwork, close faster, and have fewer underwriting guidelines. This type of speed is ideal for investors who need to cover expenses before additional cash comes in.
- Spend Your Money as Needed: Some loans are tied to specific purposes. For example, you might get a loan specifically to purchase new equipment. In comparison, this isn’t the case with asset-based lending, so that you can use your money in any way necessary. The restriction is that the money must be for your real estate investing business.
Asset-based lending for real estate is valuable because it gives investors advantages they might not get from other types of loans.
Get Started With Asset-Based Financing for Real Estate
Asset-based lending can help you buy your next commercial property for a fix-and-flip project. Alternatively, you can use your financing to buy and hold a multi-family development. Part of the beauty of asset-based financing is that you can use the money for almost anything you need to keep building a successful real estate portfolio.
Ambitious real estate investors use asset-based lending to maximize their borrowing capacity, and Capital Fund 1 is here to help. Our team can work with you to supply fast funding for your next project. Our team has more than 100 years of combined experience, a reputation for client satisfaction, and a commitment to building productive business relationships today. To see how we can get you the funding you need, contact us today.
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