Small business owners in Utah often need financing to expand operations. But they face unique challenges because traditional lenders are not always keen on funding their ventures. Traditional financing can be cumbersome and time-consuming. So when a small business needs faster access to cash, traditional funding often doesn’t cut it.
There is a viable alternative in Utah hard money loans. Business owners with valuable property they own free and clear can unlock the equity in that property and leverage it as a financing tool. The process is similar to how cash-out financing works with mortgaged properties, except that in this case, the business owner has no mortgage to worry about.
Cash-out Financing vs. Hard Money
Cash-out financing is comparable to a hard money transaction in the sense that both financial transactions take advantage of equity. In a cash-out situation, the property owner is refinancing an existing mortgage in order to unlock equity. He gets a loan on the full value of the property and pays off the existing mortgage. The amount left over is the equivalent of his equity in cash. The cash can then be used for other purposes.
A hard money loan is similar in principle, with one clear distinction: the business owner’s property is not mortgaged. He owns it free and clear. That means he has 100% equity in that property. Its full value can be utilized to secure a hard money loan.
Here is how it would work in a business expansion scenario:
- Property Valuation – The business owner would apply for a loan. The hard money lender would then assess the value of the property being offered as collateral.
- Offer Preparation – Based on both the loan application and the lender’s assessment, a loan offer would be prepared. The lender would still work based on the predetermined loan-to-value ratio, which is standard.
- Closing – Following approval and finalization, the loan is closed. The business owner now has cash to put into his expansion venture.
It is important that the business owner understands that Utah hard money loans are short-term deals. They are not 15- or 20-year small business loans. Also, they tend to be structured as interest-only loans with terms ranging from 6 to 24 months. So a business owner must have a reasonable exit plan to be approved.
The Benefits of Unlocking Equity
Because Utah small businesses have access to small business loans and other forms of traditional financing, an inevitable question arises: why unlock the equity in an existing property through a hard money loan? Rather than offering a standard pat answer, it is better to dive into the benefits of financing through hard money loans.
1. Immediate Access to Capital
Business expansion doesn’t always fit into a nice timetable. In fact, businesses often encounter unexpected expenses or opportunities that require them to move as quickly as possible. Traditional lending often cannot move at a fast enough pace. Utah hard money lending can.
Hard money gives Utah business owners immediate access to capital. Because loans can be approved and closed in a matter of days, business owners aren’t left wondering if their plans will fall through because they cannot get funding in time.
2. Less Strict Lending Requirements
Strict lending requirements govern traditional financing. Unfortunately, small businesses are often left out in the cold because of those requirements. Hard money is different. As private lenders, hard money providers tend to offer financing with less stringent requirements.
A hard money lender is most interested in the property being offered as collateral. Rather than borrower income, credit score, etc., a Utah hard money lender looks at the value of the property and its ability to secure the loan. With less stringent requirements in play, small business owners find approval easier.
3. Loan Flexibility
Even when small businesses can secure traditional financing for their ventures, the loan offers they receive might not be ideally suited to their circumstances. Traditional loans are highly structured instruments that do not leave a lot of room to account for unique problems or challenges. Lenders offer what they offer, and business owners have to accept that.
Yet another key benefit of hard money is that it is considerably more flexible. Lenders have the ability to customize each loan to the unique specifications of the project being financed. For a small business owner whose pending venture doesn’t fit into a conventional mold, hard money often proves to be the only solution.
4. No Early Repayment Penalties
Though there are always exceptions to the rule, hard money loans tend to be offered with no early repayment penalties. A lender might write a loan with a 24-month term. But if the borrower can pay it off in 12 months, the lender is more than happy to accept full payment without penalty. Both parties move on, and that’s that.
Unfortunately, early repayment penalties are standard operating procedure in traditional lending. The reasons are less important than understanding that’s how traditional lending works. Businesses hoping to secure financing need to keep this in mind if there is any possibility they might repay their loans early.
A Small Business, Not an Institution
Hard money offers Utah business owners a viable option for funding expansion. If you own a small business and are looking to finance your next venture, consider Actium Lending. We operate as a small business as well. We are not a monolithic financial institution from which it is impossible to get personalized service.
When you partner with us, you are working with a small team of financial professionals genuinely interested in your success. We want to help you reach your financial goals so that your business continues to grow and thrive.
Perhaps a Utah hard money loan can help you unlock the equity in a property you own free and clear. You will not know until you ask, so reach out to our team as soon as you can.
FAQs
How much equity can hard money financing unlock?
The amount of value that can be leveraged for financing is up to the lender. Hard money lenders still rely on LTV ratios to determine how much they are willing to lend.
Do hard money loans still require down payments?
Absolutely. Lenders still require that borrowers invest some of their own cash in their ventures. Requiring a down payment distributes the risk between both parties instead of the lender taking on 100%.
Can anyone apply for a hard money loan?
Technically, yes. But in reality, lenders prefer commercial borrowers with valuable property they can offer as collateral. This would include small business owners, investors, etc.
What types of property can be used as collateral?
Lenders can accept anything as collateral. But in nearly every case, loans are backed by real estate. Commercial real estate is preferred given the nature of most hard money transactions.
What are the rates in terms of hard money loans?
Rates and terms are determined independently by each lender. Historically, rates are higher and terms shorter compared to traditional loans.
