Being approved for a hard money loan can open up a world of business growth and investment opportunity especially given hard money’s key advantage: speed. While traditional loans can take months to get approval, hard money can be acquitted and put to use quickly–even in as little as a week. With that in mind, here’s how to use your hard money loan.

 

What should you have before getting the loan?

One reason why hard money loans are so popular is that they are much easier to get than a traditional loan. Hard money lenders do not generally take a deep look at credit history or finances before lending. Instead, they rely on the value of the property being used as collateral to determine the value of the loan. That being said, lenders will ask for some information before approving a loan to ensure that they will get their money back.

 

• Equity: Many, if not most, hard money lenders want to see that you are invested in your own project before giving you a loan. If you are investing in real estate or using the loan to buy property, they will probably expect to see some equity, often as a down payment.
• A clear plan for the loan: Lenders like to see that you have a clear plan for both how you are going to use the loan and how you will pay it off. Since lenders are not basing their decision to provide the loan on your creditworthines or financial history, they need a way to protect themselves. Knowing that you have a clear plan for the loan will increase your chances for approval.
• Financial security: While most lenders won’t look at credit, they will want to know that you have the finances to pay back the loan. For this reason, they may ask about cash reserves or reserve some of the borrower’s loans for costs such as insurance, taxes or even loan payments.

 

Hard money loan best practices

Once you have the loan you have some big decisions to make–primarily how you intend to use the money and then how you intend to pay it back. This is why we recommend having a detailed plan for your loan before you acquire and have a safe estimate for your return on investment. Not only will this help you actually get the loan, but it will also let you pay back the loan comfortably.

 

If you plan on using your loan to fund an investment property you should consider accounting for the interest rate in your rental rates or business’s budget.

 

What to do once you have the loan

Once you have the loan, you get to make it work for you! While hard money is typically known for its uses within real estate, there are plenty of ways it can be used. Here are a few ways to use your hard money loan.

 

Investing in real estate

Real estate is one of the best investments, especially as values climb in today’s competitive market. One of the major challenges that buyer’s face in a seller’s market is competition: sellers are looking for buyers with cash on hand who are ready to close quickly. Unfortunately, traditional loans can take months to secure, giving buyer’s with cash a huge advantage. Hard money loans, on the other hand, can be approved in as little as a week.

 

Just keep in mind that like with a standard mortgage, most hard money lenders will expect you to put down a down-payment on your property.

 

Fund a fix-and-flip

One reason investors may shy away from hard money loans is the higher interest rate. However, this interest rate is less impactful when you have a short period. If you plan on fix-and-flipping a property, a hard money loan is an excellent way to back the project. Hard money loans are a popular option for fix and flips because they typically run a period that takes as long as the renovation itself. The profit on a flip usually more than covers the cost of the loan so that the investors can walk away with a substantial gain.

 

Business start up costs

Many people do not realize that hard money loans can be used for more than just funding a property. You can use your hard money loan to help finance your business if you find that you haven’t raised enough capital or if your business is growing faster than expected.

 

Support business growth and costs

If your business is experiencing high growth quickly, it will likely also experience rising costs. One thing that shouldn’t get in the way of growth is time spent waiting on a loan to be approved. Hard money is a great way to bridge the gap between high growth periods that require extra spending on materials, improved spaces, training, or even personnel.