As rental prices become steeper and steeper, investors have become more cautious than ever. In 2023, you can’t afford to take big risks anymore. If you buy the wrong property and fail to complete a successful flip, you’ll incur a significant loss.
This is just one example; the slope is becoming slipperier by the day. As an investor, make sure you have the rental experience, expertise, knowledge, acumen, and objective eye needed to make wise decisions, not just good decisions. The right call will help you reel in a staggeringly high profit and kick-start your business on the right note.
If your upcoming real estate project is in the pipeline, you may be exploring different loan options right now. There are two key loan types you can choose from: traditional bank loans and asset-based loans.
In this blog, we’ll break down the difference between the two. We’ll also highlight their pros and cons to help you make the right call for your project. Let’s begin!
1. Traditional Bank Loan
A bank loan is when a business borrows money from a bank to finance its operations. The money must be repaid to the bank over a defined period of time with interest.
To determine whether you’re eligible for a loan, the bank will look into your credit and business history. They’ll also request collateral.
Bank loans are typically not recommended for several reasons. For starters, it’s very difficult to obtain a bank loan. The large majority of banks have very strict requirements. If you don’t meet them, you’ll struggle to secure a good loan.
Banks are also known for having a poor track record when it comes to responsiveness. You may not hear back from them for several weeks or sometimes even months. When you finally do, there’s a high chance that the answer will be negative.
This makes the process frustrating for businesses that require urgent funding for time-sensitive projects. If you end up waiting and eventually find out you’re not even getting the loan, your project will take a serious hit.
Banks are typically extremely cautious and risk-averse. If you don’t have good credit or negative/insufficient business history, your loan request will not be entertained. It’s also important to note that banks typically don’t provide access to big sums of money, especially if they don’t feel confident about your business/project/plans.
If you’re working on a rental project, you may require a lot of capital. A bank loan will not adequately cover your expenses.
2. Asset-Based Loan
Asset-based lending (ABL) is more popular than bank lending, and it’s easy to see why. This type of loan allows businesses to use their assets as collateral for the loan. If you don’t repay the loan on time, the lender can take ownership of your property, inventory, equipment, accounts receivable, or any other asset provided as collateral.
In most cases, liquid collateral is used as opposed to physical assets. ABL is a great option for real estate investors who require short-term capital for their projects.
At InstaLend, we provide ABL to contractors, investors, property flippers, and builders across the nation. If you’re working on a short-term project, opt for a fix and flip or new construction loan (provided for 12 months). Bridge loans have 12–24 month loan terms, while rental loans are repaid over a period of 30 years.
The most obvious benefit of ABL is the tremendous income flexibility. Private lending agencies don’t ask for income verification; they simply use collateral. As a borrower, you can get immediate cash to fund urgent business activities.
The process is also much faster, smoother, and more predictable. Borrowers enjoy a higher acceptance rate. Even if your credit and business history aren’t spotless, you still have a chance of getting approved for a loan.
Recommended Read: The Smart Way to Fund Your Fix and Flip Project in 2023
3. Which Option is Right for Me?
If you’re looking for greater convenience, ease, flexibility, and support during the loan period, an asset-based loan is your best call. It doesn’t require an annual account cleanup, which is a far cry from the traditional bank lending approach.
If you take out a bank loan, you must have a zero balance at least once every 12 months. This can be very frustrating in the long run.
Asset-based loans are also not subject to harsh reviews. In case of a bank loan, strict regulatory reviews are imposed. A board of directors will typically review your line every month to determine whether you’re still able to repay the loan. If you want greater privacy and convenience, an asset-based loan is the best option for you.
4. The Importance of Choosing the Right Lender
Today, you can choose between hundreds and thousands of private asset-based loan agencies across the nation. Unfortunately, many borrowers end up partnering with the wrong agency and get stuck with an insufficient loan amount and unfavorable loan terms.
Before you sign the dotted line, make sure you feel fully confident about proceeding with the partnership.
- Have you done your research?
- Have you thoroughly vetted the lending agency?
- Do they have enough experience?
- What do their clients have to say about their services and track record?
- Do they provide flexible lending?
These are just a few foundation questions you should ask; we’re only scratching the surface here. Dig deeper until you’re confident that you’re making the right decision.
The right loan agency will be honest and transparent from the get-go. They will present all the information to you accurately without any omission, embellishment, or fabrication.
There should be no upfront fees, prepayment penalties, or other questionable practices. The lending process should be smooth, hassle-free, and enjoyable for you as an investor.
Ask the right questions and keep the market trends in mind. Once everything is on track, it’s time to secure your loan and kick-start your project!
At InstaLend, we’re committed to helping real estate investors grow their businesses. As a private lending agency, we provide loan commitments the same day and close within a few days.
Explore our asset-based loan options:
- Fix & Flip Loan
- Single-Family Rental Loan
- Multi-Family Bridge Loan
- New Construction Loan
- Multi-Family Term Loan
Ready to get started? Contact our experts to start building a customized loan plan that’s right for you.
By providing flexible terms, fast approval and funding, and peace of mind, we help you enjoy a hassle-free loan. You don’t have to worry about upfront processing fees or prepayment penalties; our loan programs are made with your ease in mind.
Let’s begin.
