Asset based lending is expanding rapidly to meet the needs of real estate investors looking for capital. Technology has played a bit part in expanding accessibility. For anyone building a real estate portfolio, it’s very important to understand what asset based lending is, how to find it and how to use it.
What is Asset Based Lending? Asset based lending is any kind of lending secured by an asset. This means, if the loan is not repaid, the asset (your investment property) is taken as collateral for the unpaid debt. In this sense, a mortgage is an example of an asset based loan. More commonly however, the phrase is used to describe lending to business and large corporations using assets not normally used in other loans. Typically, these loans are tied to inventory, accounts receivable, machinery and equipment.
So, when something of value is pledged as collateral, it’s an asset based loan. But we’re not talking about a traditional homeowner’s or business loan. We’re talking about asset based lending for Real Estate Investing. The most common types of asset based loans for real estate investing are hard money loans and private money loans.
Why Use Asset Based Lending? Real estate investors find asset based lending attractive because loans are based on the property or project, rather than the personal credit history or cash position of the borrower. Instead, lenders look at the numbers: What’s the exit strategy and anticipated return for the investor? What’s the as-is value of the property? And what is the after repair value of the property as a fix and flip? They look for safety in the numbers of the deal rather than debt-to-income ratios and credit scores of the borrower.
These loans work great for real estate investors since many are self employed, some have existing mortgages that exclude them from traditional bank financing; and for those new to investing – it offers funding options that a traditional lender might not. So unlike the homeowner who has to prove income, existing debts and a whole lot more, an investor looking for asset based funding needs to document the viability of his or her property and it’s intended use and anticipated outcome.
Contact Taylor Made Lending today to discuss if Asset Based Lending is right for you?