Is a Hard Money Loan Right for Your Business?

Is a Hard Money Loan Right for Your Business?

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Are you familiar with hard money loans? Is a hard money loan right for your business? We will find the answers to these questions together in today’s blog.

It is best to start from the fundamentals. What is a business hard money loan? It is a type of mortgage that is backed by property, such as a piece of land meant for commercial use or commercial real estate. As these loans depend entirely on the value of the collateral offered – unlike the requirements of traditional loans – they are often used by business owners who cannot qualify for other options available for small business purposes.

The Working Process of Hard Money Loans

Generally, hard money loans are offered by private lenders or investors. Banks, credit unions, and other similar establishments usually cannot provide this facility. Lenders underwrite a hard money loan application based mostly on the value of the collateral instead of more conventional criteria like credit score or business finances.

The value of the collateral also affects your loan amount. In most instances, hard money lenders use the loan-to-value (LTV) ratio to ascertain how much capital an applicant is eligible to receive and determine the risks of lending to the applicant’s business. To calculate the LTV, you must divide the loan amount you borrow by the value of the collateral.

Most hard money lenders typically offer loan amounts with LTVs ranging from 50% to 75%. On the other hand, traditional lenders may provide 80% to 90%.

Since these loans are connected directly to an asset’s value and the business’s operations, hard money loans are inherently riskier compared to other types of business loans. Naturally, they often have high interest rates and short repayment terms.

Advantages and Disadvantages of Hard Money Business Loans

  1. Advantages
  • Hard money loans can serve multiple purposes. While they are often used in real estate projects, they can also serve various short-term projects. You can use a hard money loan for working capital, debt refinancing, debt consolidation, and bridge financing.

 

  • Get access to funds quickly. Many lenders may be able to approve your application within 24 hours and provide funding within one or two business days. Regular bank loans, on the other hand, take several weeks or even months to qualify. Bank applications are always document-heavy and may need you to apply in person. Hard money lenders at ALT Financial are streamlined and allow applicants to apply online with minimal documentation.

 

  • It is easy to qualify for hard money loans, considering the fact the requirements are primarily based on the value of the collateral. Even if lenders look at an applicant’s credit score and time in business and associated finances, they do not prioritize these factors when underwriting the application. So, businesses with bad credit, as well as startups, can qualify for hard money loans.

 

  1. Disadvantages
  • Is a hard money loan right for your business? After looking at the pros described above, the answer may seem like a “yes,” but you should consider the cons, too. For starters, hard money loans are risky because they are based primarily on the value of the property an applicant uses to secure their loan. The inability to repay gives the lender the right to seize the collateral.

 

  • Hard money lenders usually charge significant interest rates as an offset. These loans also tend to have short repayment windows, ranging from a few months to a few years. Short terms combined with high rates add to the challenges of repayment.

 

  • A lender may ask an applicant to provide a down payment of 10% to 30% on a hard money loan. Sometimes, the down payment value can be much more. Then again, if you have strong credit and can meet the financial qualifications, you do not have to pay such a massive amount as a down payment. Of course, doing so, nonetheless, will give you access to more approachable rates and terms.

Are There Any Alternatives?

Yes, there are a few alternatives to hard money loans, but they may appeal to you only if you do not need the funds immediately. For starters, you can take a step back to build your credit and cash flow. This strategy improves your qualifications and may even qualify you for a more competitive loan when you feel like you are ready to apply.

Conversely, if you need the money quickly, the following business funding options might just do the trick.

Equipment Financing

Equipment financing is a form of asset-based financing. By going for an equipment loan, you can get funding equal to almost 100% of the value of the equipment you want to buy. As time passes, you repay the loan and interest. The equipment thus purchased serves as collateral. Qualifying for equipment financing should be much easier than hard money loans. Lenders will check an applicant’s personal credit and business finances, but they will focus more on the value of the equipment the applicant wants to buy.

Invoice Factoring

Another option worth mentioning is called invoice factoring. It is beneficial for business-to-business companies with cash stuck in unpaid invoices. Invoice factoring is inherently a type of asset-based financing that you can try to access if you do not qualify for traditional loans. Opting for invoice factoring means you get to sell outstanding invoices to a factoring firm at a discount. The company offers you a percentage of the invoice upfront and then takes responsibility for collecting payment from your customers.

Short-Term Loans

With short-term loans, you get access to capital fast. You can use the funds for various purposes. A short-term loan is readily available from online lenders and typically has terms of around 18 months. Just like hard money loans, short-term loans for business purposes often have flexible qualification requirements. However, they do not rely on collateral so much. You may qualify for a short-term loan with a minimum credit score of 500 and at least six months in business.

The Verdict

So, is a hard money loan right for your business? After everything we have discussed here, the most appropriate answer would be – it depends. Hard money loans have a high interest rate and short repayment terms. However, it offers fast cash to borrowers who cannot qualify for other financing options. Just remember that the lender can seize the property to recoup the losses if you cannot repay the loan.

In the end, everything depends on the state of your business and your financial requirements. You must weigh the risks and rewards and then make your move. Our loan experts at ALT Financial will help you make the right decision. Let us work with you in fulfilling your business objectives with curated loan options.

FAQs

Q1. Can I use a hard money loan for a startup business?

A1. Yes, hard money loans can finance startups, as approval is based on collateral rather than business history or credit score.

Q2. What types of properties can be used as collateral for a hard money loan?

A2. You can use commercial buildings, land, rental properties, or even mixed-use properties, depending on the lender’s requirements.

Q3. How fast can I get approved for a hard money loan?

A3. Many lenders approve applications within 24 hours, with funding available in as little as one to two business days.

Q4. Can I refinance a hard money loan with a traditional loan?

A4. Yes, once your credit improves or your business stabilizes, refinancing into a traditional loan with lower rates is possible.

Q5. Do hard money lenders require business financial statements?

A5. Not necessarily. Lenders focus primarily on the property’s value, but some may review financials to assess overall risk.

How to Transfer the Title of an Inherited Property Without a Trust

How to Transfer the Title of an Inherited Property Without a Trust

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When a loved one passes away without establishing a trust, transferring ownership of their property becomes a matter of following legal procedures—typically through probate or a simplified affidavit process. In this article, we’ll explain the key steps, documents, and considerations involved in transferring the title of an inherited property when no trust is in place.

Understanding Inherited Property Outside of a Trust

A trust can simplify asset transfers by bypassing the probate process, but not all estates are set up this way. When property isn’t held in a trust, it remains part of the decedent’s estate and must be legally transferred to the rightful heirs. This process ensures that the property title reflects current ownership, allowing heirs to manage, sell, or refinance the asset without complications later.

The transfer process typically involves:

  • Probate: A court-supervised process to validate the will and administer the estate.
  • Affidavit of Heirship: In some jurisdictions, a simplified method used when the estate is small and uncontested.

The Probate Process: An Overview

Probate is the legal procedure for resolving a decedent’s debts, validating their will (if one exists), and distributing assets according to the will or state intestacy laws if no will is present. Even if you are named as an heir, the property title will not automatically change hands until the probate process is completed.

Key points about probate include:

  • Court Involvement: A probate court officially appoints an executor or administrator to manage the estate.
  • Notification and Documentation: The court notifies potential creditors and heirs, ensuring all claims and legal interests are addressed.
  • Final Distribution: Once debts and taxes are settled, the court issues an order that allows the executor to transfer assets—including real estate—to the heirs.

For smaller estates or in some states, an affidavit of heirship may be used as an alternative to full probate, especially when there is no dispute over who the heirs are.

Key Steps to Transfer the Title

When transferring the title of an inherited property without a trust, follow these steps:

  1. Determine the Method and Probate Requirement

  • Review the Will: If the decedent left a will, it will typically specify how the property should be distributed.
  • Check Ownership Type: Identify if the property was solely owned, or if it was held in joint tenancy. Properties held jointly with the right of survivorship may pass automatically to the surviving owner without going through probate.
  • Decide on the Process: If probate is required, begin the probate process. In simpler cases, an affidavit of heirship might suffice.

  1. Gather Essential Documents

Collect all necessary paperwork, including:

Death Certificate: An official copy is required to prove the decedent’s passing.

Probated Will or Court Order: This document confirms the heirs and authorizes asset distribution.

Affidavit of Heirship (if applicable): A sworn statement by a knowledgeable party outlining the rightful heirs.

  1. Prepare a New Deed

Draft a new deed to transfer the property title from the decedent’s estate to the inheritor(s). The deed should include:

  • Full Legal Descriptions: Include the parcel number and a detailed description of the property.
  • Names of the Heirs: Clearly list the full legal names of the new owner(s).
  • Type of Deed: Depending on local practices, you may use a quitclaim deed, warranty deed, or another form as required by law.

  1. Notarize and Record the Deed

Once the new deed is drafted:

  • Notarization: Sign the deed in the presence of a notary public to validate your signature.
  • Recording: File the notarized deed with the local county recorder or land registry office. This step updates the public record and formally establishes the new ownership.

  1. Pay Applicable Fees

There may be several fees involved, such as:

Filing Fees: Charged by the county recorder or land registry.

Transfer Taxes: Depending on your state or local jurisdiction, you might be required to pay a transfer tax.

Other Costs: These could include fees for document preparation or legal advice.

Important Considerations

  • Legal and Tax Implications

Transferring property through probate or by using an affidavit of heirship has tax and legal implications. Without a proper transfer, the property remains in the decedent’s name, potentially leading to issues with property taxes, refinancing, or future sales. Consulting with a real estate attorney or title company ensures compliance with local laws and may help minimize potential tax liabilities.

  • Avoiding Future Disputes

Ensuring that the property title is updated correctly can help prevent conflicts among heirs and avoid challenges later on. A clear title transfer reduces the risk of disputes over ownership, which can complicate or delay future transactions involving the property.

  • When Professional Advice Is Essential

Because laws vary by state and even by county, working with professionals—such as probate attorneys, title companies, or estate planners—is highly recommended. They can help you navigate the complexities of the probate process, draft the appropriate documents, and ensure that all local requirements are met.

Conclusion

Transferring the title of an inherited property without a trust involves a series of well-defined legal steps—from determining if probate is necessary to drafting, notarizing, and recording a new deed. By gathering the right documents and following local procedures, heirs can ensure that property ownership is updated accurately, avoiding future legal or financial complications.

For more detailed guidance on your specific situation, consider consulting with an experienced probate attorney or title specialist.

Note: This article is for informational purposes only and is not legal advice.