How Hard Money and Bridge Loans Can Have Such Short Terms

How Hard Money and Bridge Loans Can Have Such Short Terms

A hallmark of hard money lending is the relatively short lending term. During the final quarter of 2021, we made a number of loans with nine-month terms. One particular loan we made was for 60 days. This makes perfect sense to our team. It doesn’t always make sense to borrowers.

We prefer short terms to maximize our yield despite taking significant risk. Note that yield and risk always have to be considered together regardless of the relationship between lender and borrower. The consideration is just as important to banks as it is to us.

How Hard Money and Bridge Loans Can Have Such Short Terms

Borrowing with an Exit Plan

From the borrower’s perspective, using hard money as a short-term funding tool makes perfect sense if a great opportunity presents itself alongside a solid exit plan. Moreover, short-term loans are all about the exit. A good exit plan gives borrowers the opportunity to access fast funding when other lenders can move quickly enough.

A case in point is one of the loans we made last year. The borrower was a local property developer looking to get its hands on an incredibly attractive property. The developer was up against a deadline and didn’t have enough time to line up SBA financing. They came to us for help. We were able to fund the acquisition on a loan we made for 60 days.

That amount of time was sufficient for our borrower to get an SBA loan in order. The borrower already knew the funding was forthcoming, so accepting a 60-day term was not a problem. We funded the acquisition, the lender got the expected funding to repay what was borrowed from us, and that was that. We all came out winners.

More Than One Way

If you were to ask us the best way to exit a hard money loan, we wouldn’t be able to give you a black-and-white answer. There is more than one way to do everything. Lining up an SBA loan just happened to be the option the previously mentioned borrower chose. But there were others on the table.

The important part is knowing what your options are before you apply. You really have to know what’s available to you because, by definition, hard money loans are short-term loans. Borrowers do not come to us for 30-year deals. They come to Actium Partners expecting loans of 12 months or less.

We Don’t Want to Own It

We take a good, hard look at borrower collateral on every new opportunity. We also take a good look at the borrower’s exit plan. At the end of the day, we really don’t want to own collateral. We require collateral to protect our own interests, but it is never our intention that it comes back to us.

Our conservative approach over the years has helped us maintain a margin of safety on every loan we make. That margin protects us and borrowers alike. By minimizing risk, we protect our own finances. But we also protect borrowers by not making loans they cannot truly afford. We think that this is the best way to do business.

All of this is to say that short terms are very possible with hard money and bridge loans due to the nature of our business. Clients we have worked with numerous times already know what to expect from us. Those who are new to Actium Partners may not. However, do not let that stop you from contacting us about a loan. If you have financial goals that we can help you meet, we would be more than interested in speaking with you about them.