Columbus Ohio hard money loan case study continued. Where we left off Carl Wilson in Columbus Ohio didn’t have any luck getting approved for his business expansion loan, so he was beginning to look at a possible hard money loan. As we discussed in the last post, hard money lenders are private lenders who charge a larger interest rate.

Carl did some asking around town and ended up finding a hard money broker in Grove City (South of Columbus). This particular broker provided funding of up to $250,000 dollars for Carl based on his existing equity in real estate. The lender had to have first lien rights on his property which was typically normal. The interest rate that Carl would have to pay was would be 15% and the default rate was 27% – very expensive. This is why you never default on your installments on a hard money loan.

The loan was approved for a term of 5 years, in which Carl could then choose to repay the loan and interest in full, or continue to cold the capital at the negotiated interest rate. Carl had no choice to except the lender’s stipulations, and got his funding.

In the end, since the loan was expensive, Carl passed on the cost from the fees and interest to the company he was contracting too. Lucky for him the signatures were not signed on the contract he was negotiating with the Columbus based airline.

Case Study #2 for a Hard Money Loan In Akron Ohio

Julie needed financing for the growth of her business in Akron Ohio. She owns and operated a small nail parlor where she does manicures and pedicures for Akron residents. She needed a loan to sell her business and relocate. The relocation of her business, including the renovation work in her new location, would cost her over $35,000 dollars. These costs did not include the cost of the of the building she wanted to buy which was $230,000. She really wanted to make her move and grow her business, and the location of her new shop was ideal – only three blocks from her home and being sold by “motivated sellers”.

She made an appointment with the bank and that got her no-where fast. They wouldn’t look at her assets. because she didn’t really have any. Furthermore, this was all taking place in the middle of the market crash of late 2008. She didn’t take it personally because most small businesses were being rejected for loans. She had only one way to go and that was the hard money market.

She found a hard money lender providing loans in Akron, Cincinnati, Columbus, Dayton, and Cleveland. She new that a hard money loan was expensive, but like the last case study, she really wanted to get her own property, and get her business going. However, her assets were slim, and her cash on hand was nil. The next step was to set up an appointment with the loan brokers to see what they could do for her and her employees. She went to her meeting in downtown Akron, and just like the bank, they were hesitant to give her any kind of a loan. Things were not looking good, and they didn’t get better.

Julie woke up late in a Friday morning with the intent to forget about getting a loan, and forget about moving into her own building. The phone rang, and she picked it up coming out of the shower. It was her mother in Columbus with bad news. Julie’s father had passed away suddenly from a heart attack the night before. Her heart sank, and the grieving process began. She put aside all business and that included her quest to borrow money.

Six months later Julie got a bank loan based on a $160,000 dollar down payment which she received as per her father’s will. She didn’t need a hard money lender because the banks were able to release her loan based on the real estate she was buying. The property was worth much less than the when Julie had first gone to see her loan officer – turns out the banks were smart to hold off on her original loan request. The markets had settled down somewhat, and the real estate in her are of Akron was not likely to drop in price going forward.

So in this case study, the borrower would not have received any kind of loan without some collateral equity. She could have saved herself some time, because it’s very difficult to get financing when the market is a free fall. You may as well just put your attention on something else and wait for the markets to settle down. It had nothing to do with her, her business, or her assets. It was common sense and the times. Of course Julie found a way to finance her building purchase, and did set up her new business successfully. As of today, she is doing well and she has hired two new employees. She bought two new massage chairs to handle more clients at a time, repainted the walls, and made her nail saloon a beautiful oasis. Her dreams are coming true thanks to her hard work and thanks to her father. This is a sad and happy ending to this case study, and a hard money loan was avoided. You want to avoid hard money lenders at all costs. If the conventional lenders (banks) will not lend you the capital, and you have some equity in property, you may “consider” hard money at the higher interest rates, but you must make the loan a short term financing solution.