Hard Money for Operating Capital
Third Party Loans Pave the Way. The new TV show “Shark Tank” will teach one a lot about bridge loans or hard money as it is called. Hard money is a loan obtained from a third party who is not necessarily a lender like a bank or a mortgage broker. In small towns there are always a handful of locals who have enough capital sitting around to help a cousin or friend of a friend buy their first home. Often a home that is not lendable like a single-wide or one that needs considerable fixing up. On a larger scale a bridge loan would be a more formal financial arrangement for a commercial venture. For example, a plumbing contractor wants to fix up bank owned properties he has purchased for pennies on the dollar. The lending party will provide that cash to get the job started knowing the contractor will be able to pay it back once the remodeling is complete and the home has been rented or resold. Either way hard money is a great way to generate operating capital to get a business service started or bail out an existing construction job.
In these tough economic times, commercial real estate developers are often the first to falter financially. Take a large condominium project that started during the boom as an example. The first tower was completed and sold out quickly, so the second tower was started. When the bottom began to fall out, it is likely several of the first tower investors started to fall back on their note payments. Then construction costs soared and the 2nd tower project stalled. This is the perfect time for that developer to turn to a real estate capital lender like Madison Realty Capital. The developer is not going to qualify for a bail out from a bank or your typical mortgage broker so a bridge loan provider is the only option. There are not downsides since there are no other options at this juncture. The interest rate may be high and the loan term may be short, but if the developer offers an equity stake in his condominium venture, that bridge loan can turn into a win-win.
At some point the market will turn around, the bridge loan or hard money will have helped you through the hard times or the start-up. Now the future will be newly paved without any further financial headaches. Ideally, the money borrowed will be paid back and any further interim financing required will be less of a mystery. Indeed future hard money loans would be available at better interest rates with a proven track record of successfully completed projects.
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