Using Real Estate Loans for Commercial Capital Financing

Using Real Estate Loans for Commercial Capital Financing

Hard money real estate loans are well known as the preferred instrument of property flippers and entrepreneurs looking to rehabilitate a property for use as facilities. They approve quickly, with a variety of structures ranging from bridge loans to long-term asset purchase loans. What you might not realize is that this cost-effective model for raising commercial capital can be used by business owners in practically any industry, provided that owner’s business owns real estate.

Capital Loans vs. Bridge Loans

Most of the time, hard money loans bring to mind short-term real estate financing because that industry has done so much with them. Capital loans for large projects are structured similarly, with collateral controlling interest costs and risk, but they have longer terms and lower LTV rates than short-term bridge loans, even if they’re structured similarly. Commercial capital loans are built to keep your overhead low during repayment while providing a large sum you can use to expand your business.

Can You Finance New Purchases?

Private real estate loans can be used to buy properties, and they work a lot like commercial real estate loans from traditional lenders. The difference? Hard money loans from private lenders might require a higher down payment for the interest rates and repayment terms you’re seeking. Some go as high as a 40% down payment requirement.

Finance Equity for Working Capital

If you own a building with adequate equity, capital loans that use the real estate as collateral essentially act as equity financing, the same way refinancing a home to get a lump sum of cash out would be. Like an equity credit line or a second mortgage, this capital can then be used as needed for the projects that help your business grow. In some cases, companies with adequate income but inadequate cash reserves even use a refinanced property to get the down payment money for a new purchase that will then be financed as well.

Put Your Money To Work

Commercial capital loans allow you to tap into the capital tied up in property equity when your business needs cash, without having to reduce your portfolio by selling properties. That’s a powerful tool when used correctly, and it works whether your passive investments are generating income or not. All you need is equity to match the ask in your loan, with enough left in the property to satisfy the lender’s risk conditions. When that’s the case it isn’t difficult to refinance for capital, so many companies use this path to get affordable capital to use on projects that directly increase business income.