One of the most interesting developments in real estate investing is how today’s real estate investors are using asset-based lending (ABL), commonly referred to as collateral-based lending, as a fast and effective option for financing. Unlike older ABLs that were risky and had high interest rates – today’s lenders offer well-collateralized loans for real estate investment transactions at competitive prices.
According to Investopedia:
“Asset-based lending is the business of loaning money in an agreement that is secured by collateral. An asset-based loan or line of credit may be secured by inventory, accounts receivable, equipment, or other property owned by the borrower.
The asset-based lending industry serves business, not consumers. It is also known as asset-based financing.”
Though ABL may be used for a variety of business purposes, below we will concentrate on their use for real estate investment opportunities.
Asset Based Loans Have a Sketchy Reputation
ABLs are still often seen as an option for creative financing only when banks refuse to lend. This reputation dates back decades, but it’s time ABLs were recognized on their own merits – not just because they can’t get a traditional loan.
Below we address some of the common misconceptions about Asset Base Loans.
How Does an ABL Work?
The ABL formula is based on the value of real estate assets, which becomes collateral for a loan. This means it’s different from traditional loans which are based on the borrower as much as the collateral. Traditional loans dig into borrower’s financials and other personal details, where an asset based lender will ask for far less. The ABL wants to know what the value of the property is now and what it will be either post renovation/construction or stabilization.
ABL is really just another capital markets product. It’s simply a different way of financing a property that is more focused on the potential value of the property.
Aren’t ABLs Expensive?
Although they may have been expensive during the time when they were considered the “loan of last resort”, today’s ABLs are actually competitively priced. At EMCAP Lending for example, interest rates start at 10% plus 2 points, split to 1 point at loan initiation and 1 point at loan payoff.
Isn’t Dealing with a Non-Bank Lender a Hassle?
The major requirement for qualifying in asset-based financing programs is having a real estate asset that can be leveraged which makes them easier to secure than traditional bank loans. The process usually takes less time and there’s no need for much of the paperwork such as financial statements, tax information etc.
If you would like to learn more about the benefits and risks of an Asset Based Loan for your next real estate project please feel welcome to contact our lending experts. They have decades of real estate investment and ABL experience. Call toll free 1-833-56EMCAP