asset based lending for real estate

The Importance of Asset-Based Lending in Real Estate Investments

Ezra Cabrera | March 14, 2019


    Real estate investors often deal with large investment amounts, high interest rates, maintenance costs, and insufficient funds. Because of this, having access to additional working capital is an opportunity no property investor wants to miss out on. If you’re looking for extra funds to support your business, check out SMB Company’s asset based lending for real estate.

    Asset-based lending is a superb way for real estate investors to acquire the financing they need to grow their business. This type of financing has recently become accessible to people who own single-family rentals, two- to four-unit properties, condominiums, and town-homes, enabling investors to acquire properties even in expensive, upscale markets.

    What is Asset-Based Lending?

    Asset-based lending is a type of financing that uses collateral to secure the loan. Depending on your lender, the collateral can be business or personal assets. To improve your chances of getting approved, it’s best you ensure the financial information surrounding your properties are updated and precise. With this in mind, it’s probably best you hire a professional to help you organize your financial statements.

    Real estate investors initially have to submit the real estate documents to the lenders. The lenders, in turn, will use this to determine the real estate property’s viability as an asset. Aside from that, they’ll also calculate the cash flow from the documents you present. From there, the lenders will determine the amount they can lend you for your investment.

    Asset-based loans typically run up to five years. Within this time, the investors should make the necessary arrangements for the property’s resale. Within the 5-year period, the investors should also be able to set up another refinancing option for the property.

    Should You Consider Asset Based Lending for Your Real Estate Deals?

    There are two considerations that can help you decide whether or not asset based lending is the right funding choice for you.

    (1) Your business is rapidly growing, and…

    (2) Your business is in the middle of a turnaround.

    The nice thing about asset-based lending is, once lenders approve your loan application and deposit the funds into your account (usually within 24 hours after approval), you can immediately put the money to work on behalf of your business.

    What are the Benefits of Asset-Based Lending?

    With the funds you receive from an asset-based loan, you can jump on purchasing opportunities quickly and without draining your business capital. This allows you as an investor to gain control not only over your cash flow, but your finances in general.

    Other benefits associated with asset-based lending include:

    Business Expansion
    If you’re looking to expand your real estate business, your main goal is the purchasing of additional properties. As you already know, buying real estate is expensive and can quickly drain your capital. However, an asset-based loan can be used to cover the costs of expanding your real estate business.

    No Issues with Credit
    Unlike traditional loans, an asset-based loan does not focus on your credit history; but rather it in turn centers on the value and quality of your assets. If a bad credit score or other credit issues are holding you back from securing a loan, an asset-based loan might just be the solution to your financing needs.

    Related: Applying for a Small Business Loan with Bad Credit

    Once you apply, the lenders will usually evaluate your asset first before determining whether you’ll be eligible for the loan or not. They usually do this by determining the rental income then subtracting rental expenses like electricity and other maintenance costs to it. The lenders will then look at the difference and determine whether you have enough cash flow left to make repayments for the loan.

    Easy to Qualify For
    What makes asset-based lending better is that business owners doesn’t have to go through the hassle of in depth loan application process. It does, however, require the borrower to present documents associated with the real estate property he’s using as a guarantee for the loan.The lenders will look at the estimated ROI, property value, and the borrower’s exit strategy.

    Moreover, the approval period for asset-based loans are also faster compared to traditional business loans. In most cases, businesses can get the funds within 1 to 2 weeks. Some lending companies may also require a 5% deposit on the loan.

    Where to Apply for Asset-Based Lending

    For many real estate investors, an asset-based loan is a wonderful tool that helps them achieve their investment goals. Whether you want to purchase additional properties, improve your marketing strategies, or hire agents, this type of loan will help you successfully grow your business. It’s also easier to qualify for compared to traditional loans.

    When it comes to where to apply, there are a lot of lending companies that offer asset-based lending. For one, the Small Business Association works with banks to provide this type of loan to small businesses and real estate investors. However, you may need to pledge all of your assets in addition to the asset you initially presented. Nevertheless, asset-based financing can supply you with the finances you need to invest in real estate or business expansion.

    About the Author

    Ezra Neiel Cabrera has a bachelor’s degree in Business Administration with a major in Entrepreneurial Marketing. Over the last 3 years, she has been writing business-centric articles to help small business owners grow and expand. Ezra mainly writes for SMB Compass, but you can find some of her work in All Business, Small Biz Daily, LaunchHouse, Marketing2Business, and Clutch, among others. When she’s not writing, you’ll find her in bed eating cookies and binge-watching Netflix.