3 Unique Benefits of Asset Based Loans
May 22, 2017
In the commercial real estate market, things move fast. Prime commercial real estate and land don’t just sit around unnoticed. Even if you have what seems to be a lock on a property, should the word leak out about its availability, interested parties will come out of the woodwork – and you’ll want the cash in hand to purchase the land and buildings right away.
Especially for those working in the commercial real estate industry, getting a traditional commercial loan can be a hassle. You want to purchase the land, build on it, and sell it out as quickly as possible while making the most profits. It is during this time when asset-based loans are the best alternative.
Benefits of Asset-Based Loans
Asset-based loans are loans that are given to commercial businesses, real estate developers and investors, which are backed by the value of the underlying asset(s) offered as security. These loans differ from traditional commercial loans because they are granted in exchange for an asset — such as real estate property bridge loans. These non-traditional loans often become ideal substitutes because the commercial business doesn’t plan to have the loan out for a long term period.
Non-traditional loans like asset-based loans are given out by private funding companies such as commercial bridge loan lenders or commercial hard money lenders. Unlike a commercial bank lender who looks at the credit history of the company and the company’s financial strength, asset-based lenders rely primarily on the value of the assets offered as collateral.
Our short list of the 3 unique benefits to asset-based loans:
1. Credit History Is Typically Not a Factor
One of the avenues banks use to mitigate the risk associated with funding loans is setting firm credit requirements, which indicate a borrower’s likelihood to meet loan payments. While these do give an indication of the borrower’s history, they don’t always tell the full story.
A bridge loan lender or commercial hard money lender will evaluate the collateral assets to base the loan amount on instead of the company or individual’s credit history. This practice works well for real estate investors or developers who do not have an established credit history or who may have a poor credit score.
2. Immediate Cash on Hand
Banks may have access to quite a bit of money, but that doesn’t mean they should (or will) lend carelessly. The approval and underwriting process takes quite a bit of time. While a bank loan could take several months to review your eligibility status, this timeline can be prohibitive for borrowers who need funding more quickly. In fact, for an investor looking to make a purchase within 1-2 weeks, traditional lenders are out of the question.
Non-traditional loans usually take less approval time and have a faster fund transfer versus traditional commercial bank loans, as little as a few days to a few weeks.
3. Repayment Options Are Flexible
Many of us are familiar with how traditional commercial loans are repaid. Should a real estate investor be in-between the purchase and sale of commercial property, they will often turn to asset-based loans.
They use the loan to make the next property purchase, building construction and handling renovations while they are waiting for another property to be sold. The asset-based loan amount will be repaid with the sale of the first property.
Asset-Based Loans and You
While some commercial real estate situations may call for taking out a traditional commercial loan, the same is true for asset-based loans. Learning the advantages of this lending route is incredibly helpful for when you need funding immediately, but don’t want to carry a long-term loan.
Contact Riverdale Funding if you are interested in hard money commercial loans for your next real estate venture. We’re happy to answer any questions you may have.
This blog was originally posted on Feb 5, 2015 and updated on May 22, 2016.
This article is a part of our Getting a Commercial Loan: Complete Guide, a comprehensive resource for anyone looking to secure a commercial loan. Read more at the link.