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types of loans

Hard Money Loans

Hard money loan guidelines and typical transactions include:
– Commercial property acquisition, construction, and refinancing
– Bank workouts, bankruptcies and foreclosures are common
– Loans on commercial buildings, vacant land, and more …

What is hard money?
Hard Money lending is collateral based. Collateral can include real estate, business assets, receivables, and personal assets such as cars, art, jewelry, etc. Most hard money lenders prefer real estate as collateral. Real estate holds its value well and is immovable making it much easier to collect on if the borrower stops making payments. Because collateral is the main requirement, credit, income, and other person qualifications are not as important, and often are ignored in the underwriting process. But don’t be surprised if a hard money lender asks for your personal information and runs a credit check. They still want to know who they are dealing with in order to prevent fraud.

Common misconceptions about what hard money lending is include: unsecured loans, personal loans, and loans for more than what the collateral will allow a lender to recoup from the foreclosure process. These loan types are best served by banks and large institutional lenders that feel comfortable with the additional risk of losing money in the event of non-payment. Most hard money lenders will not make construction loans, no money down purchase loans, and rehab loans based on fixed up values. These are special niches that only a small percentage of lenders cover.

Hard Money lenders are often from private sources. The lending philosophy is to fill niches conventional lenders will not touch. Because of their small size and personal involvement, hard money lenders can usually close a loan much faster and with less paperwork than a conventional lender. Speed and flexibility are the hard money lender’s biggest competitive advantage, allowing them to charge higher rates and fees than conventional lenders. Because hard money is expensive, it is typically viewed as a temporary solution. Loans are usually written for no more than a 5 year term.

Got a tough multi-million dollar deal?
Consistently hearing “No” to your deal because it doesn’t fit the conventional box?
Need a short term loan? Are traditional lenders taking forever to close?
With “private lenders” the hard assets are the key.
Hard money loans are property-driven and typically have a much quicker turnaround. Creative transactions such as: interest only payments, partial deed release, blanket loans, and participations are usually considered.

Bridge Loans

Bridge Loan: Short-term loan made in anticipation of long-term funding or financing.

Bridge Loan financing is an effective vehicle to immediately capitalize on a purchase opportunity. It is a form of short-term financing which is expected to be paid back – generally within the range of 6 to 36 months – once the borrower obtains more permanent, lower cost financing.

Some Common Bridge Loan Scenarios:
– Buying one property before selling another
– Acquire commercial property
– Rehabilitation or additions
– Expanding your business
– Investments
– Restructurings
– Mergers
– Leveraged Buyouts

In real property transactions, a bridge loan can give you a stronger negotiating position and enable you to buy a property without a contingency on the sale of your existing property. Whether it is through a commercial mortgage lender, an asset based lender or a venture firm, there are bridge loan sources in our directory of lenders.

Bad Credit Loans

Anybody that has a poor credit history may find it very difficult to arrange an unsecured loan. Most often the secured loan route is the only one available. Because lenders have property to secure the loan, they are able to offer more flexible guidelines for acceptance.

Tax Liens, County Court Judgements, 30 day late payments to creditors, and other defaults are the most common of adverse credit. These are registered by the provider of credit to the credit agencies which are in turn used by most credit providers.

Bad credit can stay on your credit report file for some years and will make obtaining unsecured credit very difficult although secured lenders are far more sympathetic.

Secured loans are amongst the most effective way raising funds if you have had some credit difficulties in the past, but be aware that your home is at risk if you do not keep up the repayments on a mortgage or loan secured by it.

Real Estate secured loans can be seen as a method to rebuild credit after a period of difficulty. Using your real estate equity as collateral for a loan to consolidate debts, lower monthly obligations, and get a “fresh start” is one strategy used to regain a good credit standing with the credit agencies.

Mortgage Loans

Hard Money Mortgage
A Hard Money Mortgage offers you a borrowing of high LTV of the value of the property. Rates may be fixed, variable, discounted or capped. Opting for a Hard Money mortgage means that you could risk facing a negative equity situation if house prices fall. You may also be charged an above-average interest rate and a mortgage indemnity premium.

Capped rate mortgage
A capped rate mortgage has a maximum interest rate for a given term. The interest rate you pay cannot go higher than the agreed capped rate, thus you know the maximum amount your monthly repayments could rise to. However, if the basic interest rate falls below the capped rate, repayments will also reduce.

100% Mortgage
A 100% mortgage offers you a borrowing of 100% of the value of the property, i.e. no deposit is required. Rates may be fixed, variable, discounted or capped. Opting for a 100% mortgage means that you could risk facing a negative equity situation if house prices fall. You may also be charged an above-average interest rate and a mortgage indemnity premium.

Self-certification mortgage
Self-certification mortgages are available for contract workers and the self-employed. The lender will ask for details of the borrower’s income but they will not require to see proof of total earnings. Other terms will depend upon the lender’s requirement at the time and in accord with the rates prevailing in the market place.

Variable rate Mortgage
A variable rate mortgage is one in which the amount you repay increases or decreases in line with any interest rate changes. This means that you cannot predict the monthly cost of the borrowing, which could cause financial concerns within the mortgage period.

Buy-to-Let Mortgage
Buy-to-let mortgages are provided for property purchase for investment in the private rental sector. They are assessed as though they are ones for residential occupation. Assessment of borrower affordability can be based on projected rental income and/or earnings dependent on the lender’s individual policy.

Current Account and Offset Mortgages
A current account mortgage allows you to operate your mortgage borrowing through a current account. This method enables you to save interest as your normal cash flow will alter the outstanding debt. You will be required to pay your salary into the account. An offset mortgage allows you to keep your balances e.g. mortgage, savings, current account etc in separate accounts but all balances are offset against each other thus allowing the possibility of reducing the interest paid and could result in the mortgage being repaid early.

Base Rate Tracker Mortgage
A base rate tracker mortgage will be based on the Bank of England base rate and a possible loading for a set period or for the term of the loan. The rate payable will alter in line with any change to the Bank of England base rate.

Cashback Mortgage
A cashback mortgage provides a cash rebate on completion of the purchase. The sum is either a percentage of the advance or fixed. This cashback could help you to cover some of the expenses of setting up home but, this bonus is often subject to higher repayment rates and may include penalties for repaying the loan early.

Working Capital Loan Program

The Facts About …CAPLines

CAPLines is the U.S. Small Business Administration’s umbrella lending program that helps small businesses meet their short-term and cyclical working-capital needs. CAPLines can be used to:

– Finance seasonal working-capital needs;
– Finance the direct costs of performing construction service and supply contracts;
– Finance the direct cost associated with commercial and residential construction without a firm commitment for purchase;
– Finance operating capital by obtaining advances against existing inventory and accounts receivable.

There are five distinct short-term working-capital loan programs under the CAPLines umbrella including:

Seasonal Line – Finances anticipated needs during seasonal upswings in the business cycle. Repayment is made from the sale of inventory and collection on receivables created during the season. The Seasonal Line can be revolving or nonrevolving.

Contract Line – Finances the direct labor and material costs associated with performing assignable contract(s). One contract line can finance more than one contract.

Builders Line – Finances the direct labor and material costs for small general contractors and builders that construct or renovate commercial or residential buildings. The building project serves as the collateral; Builders Line loans can be revolving or nonrevolving.

Standard Asset-Based Line – Provides financing for cyclical, growth and recurring short- term needs by advancing funds against existing inventory and accounts receivable. Repayment comes from converting short- term assets into cash and remitting this cash to the lender. Businesses continually draw and repay as their cash cycle dictates. This line of credit is generally utilized by businesses that provide credit to other businesses. These loans require periodic servicing and monitoring of collateral, for which additional fees are usually charged by the participating bank.

Small Asset-Based Line – Provides up to $200,000 under an asset-based revolving line of credit similar to the Standard Asset-Based Line, except that some of the stricter servicing requirements are waived (provided that the business can consistently show repayment ability from cash flow for the full amount).

Loan & Guaranty Amount
All CAPLines are only provided on a guaranteed basis and can be for any dollar amount except for the Small Asset-Based loan, which is limited to $200,000. However, the maximum SBA guaranty share is limited to $750,000 or 75 percent, whichever is less.

Loan Maturity & Disbursement
Each of the five lines of credit has a maturity of up to five years. However, to meet the needs of the applicant, a shorter initial maturity can be established. CAPLines funds may be used as needed throughout the term of the loan to purchase short-term assets, as long as sufficient time is allowed to convert the assets into cash by maturity.

The primary collateral will be either the current assets to be acquired with the loan proceeds or the current assets serving as a base for disbursements. Personal guaranties will also be required from the principal owners of the business.

Credit Requirements

Loan applicants must:

– Demonstrate the capability to convert short-term assets into cash;
– Demonstrate sufficient management ability, experience and commitment necessary for a successful operation;
– Demonstrate the capability to perform, and collect payment for that performance;
– Have a feasible business plan;
– Have adequate equity or investment in the business;
– Have the capability of providing required updates on the status of current assets;
– Pledge sufficient assets to adequately secure the loan;
– Be of good character;

Guaranty & Service Fees – A guaranty fee is paid by the lender and is usually passed on to the borrower. On loans with maturities of up to one year, the fee is 0.25 percent. On loans where the guaranteed portion is $80,000 or less with maturities of more than one year, the guaranty fee is 2 percent of the guaranteed portion. On loans where the guaranteed portion exceeds $80,000 with maturities of more than one year, the guaranty fee is figured on an incremental scale. The lender also may charge a servicing fee no greater than 2 percent of the outstanding balance on an annual basis for all CAPLines loans except the Standard Asset-Based loan, where there are no fee restrictions.

Interest Rates – The rate of interest will be negotiated between the borrower and the lender, but cannot exceed the prime rate plus 2.25 percent.For More InformationInformation is power. Make it your business to know what is available, where to get it and, most importantly, how to use it.

Sources of information include:

U.S. Small Business Administration
SBA District Offices
SBA OnLine (electronic bulletin board)
Business Information Centers (BICs)*
One-Stop Capital Shops (OSCSs)*
Service Corps of Retired Executives (SCORE)*
Small Business Development Centers (SBDCs)*
U.S. Export Assistance Centers (USEACs)*
Women’s Business Centers (WBCs)*

* Inquire at your local SBA office for the location nearest you.

Unsecured Loans

An unsecured loan is a debt obligation which does not use your property as security for the loan unlike a mortgage or a secured loan where your house is used as collateral.

These loans also differ from secured loans by the fact that they in theory provide less risk to the person taking out the loan due to the fact that their house is not used as insurance on their payments. This is true so long as you don’t default on your payments. If the payments are no made you could have court proceedings taken against you and your home.

This could in effect result in the loss of your home, turning what was an unsecured loan into a secured loan. For this reason you need to be extra careful to ensure that you keep up the payments on these loans. Loan companies will often act aggresively on payment defaulties.

A good credit rating and credit history are very important if you are looking for an unsecured loan. A good credit rating is perhaps the most important factor in determining the success of your loan application due to the fact that you are not legally providing your house as collateral.

Loan companies need to see that you are a responsible citizen able to repay your debts. This is done in the form of a credit check where the loan company will see what is known as your credit score and thus your credit rating. This rating is based on many variables such as employment history, existing debts, how long you have taken to repay your bills in your lifetime and much more.

Since unsecured loans are more difficult to get you will have to show a very good credit rating to be successful in your loan application.

You will pay higher interest rates with these loans than you will with secured loans. This again is due to the increased risk to the loan company.
A loan application for an unsecured loan will be processed more quickly than for a secured loan. You will receive a reply and answer swiftly to your application and there is no risk or obligation on your part even after you subimt the application.

Equity Loans

Equity loans are typically an “investment” in a company that is secured by a certain amount of that company’s shares and structured, in part or whole, as a loan. Investment banks will provide funds secured by the “equity” or ownership shares of your company. Companies that receive funding are those in large rapidly growing markets, or in niche markets which are not targeted by major players.

Real Estate equity loans are secured by real estate equity. Equity is measured by the value of the property minus the amount of any liens against it. A popular type of Real estate equity loan is a Home Equity Line of Credit. This is usually a variable rate loan secured by a residence which allows the homeowner to receive future advances or draws against their credit line.

Commercial Loans

Commercial or business loans help companies pay for new equipment or expand operations; consumer loans include home equity, automobile, and personal loans; mortgage loans are made to purchase real estate or to refinance an existing mortgage. As banks and other financial institutions begin to offer new types of loans and a growing variety of financial services, loan officers will have to keep abreast of these new product lines so that they can meet their customers’ needs.

In many instances, loan officers act as salespeople. Commercial loan officers, for example, contact firms to determine their needs for loans. If a firm is seeking new funds, the loan officer will try to persuade the company to obtain the loan from their institution. Similarly, mortgage loan officers develop relationships with commercial and residential real estate agencies so that, when an individual or firm buys a property, the real estate agent might recommend contacting a specific loan officer for financing.

Once this initial contact has been made, loan officers guide clients through the process of applying for a loan. This process begins with a formal meeting or telephone call with a prospective client, during which the loan officer obtains basic information about the purpose of the loan and explains the different types of loans and credit terms that are available to the applicant. Loan officers answer questions about the process and sometimes assist clients in filling out the application.

After a client completes the application, the loan officer begins the process of analyzing and verifying the application to determine the client’s creditworthiness. Often, loan officers can quickly access the client’s credit history by computer and obtain a credit “score.” This score represents the creditworthiness of a person or business as assigned by a software program that makes the evaluation. In cases where a credit history is not available or where unusual financial circumstances are present, the loan officer may request additional financial information from the client or, in the case of commercial loans, copies of the company’s financial statements. With this information, loan officers who specialize in evaluating a client’s creditworthiness—often called loan underwriters—may conduct a financial analysis or other risk assessment. Loan officers include this information and their written comments in a loan file, which is used to analyze whether the prospective loan meets the lending institution’s requirements. Loan officers then decide, in consultation with their managers, whether to grant the loan. If the loan is approved, a repayment schedule is arranged with the client.

A loan may be approved that would otherwise be denied if the customer can provide the lender with appropriate collateral—property pledged as security for the repayment of a loan. For example, when lending money for a college education, a bank may insist that borrowers offer their home as collateral. If the borrowers were ever unable to repay the loans, the homes would be seized under court order and sold to raise the necessary money.

Start Up Loan Resources Page

Start up loan financing, as an unsecured line of credit has many advantages to the new business owner.

Start up loan proceeds are generally used for purchasing equipment, remodeling, or expanding your business premises. Not all businesses are alike when it comes to money management. An unsecured credit line could be the answer.

Easy access
Getting approved for a credit line allows you to make draws on your line whenever you want. You have the ability to use your credit whenever you need it.

Quick turnaround
Most startup loans give you a quick answer to your approval. Being able to respond to new opportunities fast is what being an entrepreneur is all about.

Competitive rates
Once you have your start up credit line, you typically have the option to only pay interest on what you actually draw down on your line, allowing your borrowing costs to always be competitive.

No collateral required
With a start up loan (an unsecured line of credit), your business is not required to pledge any collateral to secure the loan. You are evaluated based on the strength of your business and your personal situation as a principal and as a guarantor.