While there are a lot of different scenarios, the basic premise is the same…there is an unplanned or unexpected shortfall in your cash flow projections and you need to fill the gap quickly.
Different types of short falls tend to attract certain types of solutions.
For instance, if you’re business needs additional funds to cover the cost of placing a large purchase order, you would likely first consider purchase order financing. Or if you had an existing line of credit with a bank, you may ask them to increase your limit for the time period required to complete the order.
Another example is when someone is in the middle of a construction project and has an unplanned cost overrun or change in scope that will push the budget beyond the cash available to pay the bills. Once again, this may be covered off by a line of credit or a term loan where the financing is already in place or needs to be applied for.
But when financing is not in place already, or the time and cost required to get the additional capital approved and funded does not mesh with the timing of your cash flow projection, then another alternative would be to get a private mortgage on real estate property you own and which contains equity to borrow against.
Especially for small and medium sized businesses, the ability to access the equity in their homes can be an essential element to managing swings in cash flow requirements.
As a result, many business owners have home equity lines of credit that they can draw upon on demand and then lend the money to their business, moving cash back and forth as required through their own business bridge loan.
But the rules have changed on home equity lines of credit in terms of the amount of financing you can get out of a property. And if you don’t have one arranged, it can take 2 or 3 weeks to complete the application and funding process.
So an alternative source of short term debt financing is private lending which can potentially be done in first, second, or even third mortgage position with financing as high as 90% loan to value in some situations.
The key to private mortgages is the speed in which they can be put into place and in many cases repayment is fully open, so if the short term cash flow need is only a matter of months, you can potentially repay early without any penalty as well.
Compared to almost any other source of financing you can apply for to fill a cash flow gap, a private mortgage is going to be the fastest to get in place if you have all your documentation in order.
Another great aspect of private money is that it can many times go behind your existing financing charges on a property allowing you to retain lower rate loans already in place versus having to pay them out to further access your equity.
If you have a short term debt financing requirement and have equity available to leverage in a residential or commercial property, then I suggest that you give me a call so we can quickly go over your requirements and immediately discuss the available private mortgage options.