What is Asset-Based Lending (Real Estate)?

Written by Posted On Friday, 12 October 2018 16:06

Asset-based lending for real estate requires a loan amount to be secured by real estate which can be residential, commercial, industrial, or land. The primary focus on loan approval for asset-based mortgage lenders is the value of the property and the amount of equity / down payment the borrower has. Institutional lenders like credit unions and banks consider the property and equity but primarily focus on credit and income. Another commonly used term for asset-based lending is equity-based lending.

Because of the focus on the property value and the equity of the borrower, asset-based lending companies can providing funding at a much faster rate than conventional lenders. Asset-based lenders are also able to look past issues on a borrower's record such as poor credit scores, lack of income history and other problems on a borrower’s record. These issues would typically force a bank to deny a loan request from the borrower.

Asset-based lenders are protected from the borrower defaulting on the loan. The lender can force the sale of the property to recover their funds. Hard money lenders (private money lenders) are the most common example of asset-based lending companies.

Asset-Based Lending for Real Estate Investors

Real estate investors use asset-based hard money lenders for quick approvals and funding with few requirements and low documentation. Asset-based lending can allow for funding to be completed in as few as 3-5 days if needed. Obtaining a similar loan from a bank could take months for approval and funding.

Most hard money lenders provide residential real estate asset-based lending. Specialized hard money lenders may offer loans for other types of property such as land, commercial, and industrial. Asset-based hard money lenders can fund a variety of different types of loans.

Asset-based loans typically require a down payment of 25-30% or more for the purchase. In the case of a refinance, the borrower will need to keep at least 25-30% of their equity in the property at the time of the loan. The borrower providing a down payment (or maintaining equity) provides protection for the lender. This is known as the borrower having some “skin in the game”. The larger the borrower’s equity or down payment the better the chance of receiving loan approval. Asset-based lenders would be more willing to provide better terms for a lower loan to value ratio (LTV).

Asset-Based Lending for Primary Residences

While all asset-based mortgage lenders provide investment property loans for business purpose, there are few asset-based lenders able to provide owner occupied consumer purpose loans. Consumer purpose loans are subject to more government regulations, require additional licensing and involve a more in-depth underwriting process.

Asset-based lenders who lend on primary residences can provide short-term loans to borrower’s who are financially strong and have an exit strategy that is reasonable. The borrower must be working towards a situation that will allow them to obtain conventional refinancing in the next couple years.

Asset-Based Lending Rates

Rates from asset-based lender are much higher than the rates available from conventional lenders. Asset-based lending interest rates are typically in the range of 8-11% depending on various factors including the loan to value ratio, property type and location, strength of the borrower and the lender. While these interest rates are much higher, these are intended to be only short-term loans. The quickness of funding and approval and the convenience of flexible lending criteria make up for the higher cost.

North Coast Financial is a direct asset-based hard money lender providing asset-based lending in the state of California for both business purpose and consumer purpose.

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Jeff Hensel

North Coast Financial, Inc. is a California hard money lender with over 37 years of experience specializing in various types of hard money loans including probate and estate loans, investment and rental property loans, bridge loans, fix and flip/rehab loans, purchase loans, cash out and refinance loans and other hard money loans with California real estate as collateral.


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