Hard money mortgages are becoming a very popular alternative source of finding among both entrepreneurs as well as angel investors. This is primarily due to the fact that there are very high interest rates associated with the usage of a hard money mortgage that is providing by a private funding source. As the economy is struggling, the demand for high yielding financial instruments is increasing as it relates to investors that have a significant amount of cash on hand. As such, if you or your business is seeking bridge financing, a real estate acquisition, or the purchase of tangible equipment then working with an angel investor to provide you with a hard money mortgage may be in your best interest. However, it should be noted that these loans often come with a number of covenants and caveats and you must be careful prior to obtaining to this type of funding.
Generally, hard money comes from angel investors that want to lend against tangible property. The capital does not require that you give any equity to a third-party investor, but instead are hypothecating a piece of property with the risk that you might loss the asset if you do not make timely payments on your loan. As such, you should work closely with your certified public accountant or financial adviser to determine whether or not obtaining this very expensive form of capital is in your business' best interest. You may find that there are a number of alternatives, including potentially selling a portion of your business to an angel investor, that are less expensive then a high yield debt instrument.
One of the things that you will be required to have as you seeking this type of capital is a well written business plan that showcases the financial results of your business. This is extremely important, especially as it relates to the cash flow of your business, as you will need to show that you can repay the debt financing on a timely basis. On a side note, you should also showcase that you are able to afford the upfront fees that are normally associated with a hard money mortgage or similar debt instrument.
Your business plan and documentation package should also discuss the loan to value ratios that will be associated with the real estate purchase or equipment acquisition that you intend to undertake. A professional valuation provided by a third party expert may be required of you by the angel investor or capital brokerage that is working with you on this specific deal.
In regards to finding this type of investor, most mortgage brokerage and mortgage banking firms have extensive contacts among individuals that specifically provide this type of loan. As such, you may want to approach them first prior to finding a private funding source on your own.
In closing, using a hard money mortgage may be in your best interest if you have the requisite capital to support the very high interest and principal repayments. As always, you and your accountant should thoroughly evaluate this type of capital before making any decision.
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