When conventional financing falls short, asset-based loans can save the day. They provide more flexibility than traditional bank loans, with looser income and credit requirements.
Whether you need to finance a fix-and-flip, new construction, or BRRRR project, ABL can help. Our asset-based loan programs offer fast, flexible funding that can be tailored to your project.
What Are Asset-Based Loans?
In real estate, an asset-based loan is a mortgage secured by property, typically the one you’re financing. Unlike conventional mortgages, however, asset-based loans are approved based mostly on the property’s value rather than your credit or income. While lenders may still review your personal finances, these carry less weight in the underwriting process.
Real estate investors often use asset-based loans to finance short-term investments. The loan can cover property purchase and renovation costs, and you can repay it by selling or refinancing the property once the project is complete. This makes asset-based loans an ideal option for investors looking to act quickly on opportunities without tying up their own capital.
Benefits of Asset-Based Loans
Asset-based loans also offer many additional advantages. Consider the following:
Easier Qualification
Qualifying for a traditional loan can be challenging (if not impossible) for those with irregular income or existing project debt. However, asset-based loans focus on the viability of the deal. If you have an attractive opportunity with a solid exit strategy, your loan is likely to be approved.
Flexible Terms
Asset-based lenders like ABL understand that every real estate project is unique and never goes exactly according to plan. That’s why we tailor repayment and other loan terms to your needs. We want you and your project to succeed.
Fast Funding
Due to their streamlined underwriting process, asset-based lenders can fund loans quickly. For example, ABL loans close in as few as 10 days. If you don’t have time to wait for a traditional mortgage to come through, asset-based loans are the way to go.
Higher Leverage
Since asset-based loan amounts are tied to the property’s value instead of your income, you can often get approved for higher amounts, giving you access to more capital and raising your potential returns through positive leverage.
Scalability
Asset-based lenders don’t limit your borrowing to a maximum DTI. Instead, you can borrow as much as you want so long as the collateral supports it. By not having to maintain a maximum DTI, you’re free to grow your real estate portfolio much faster.
How to Qualify for an Asset-Based Loan
Now that you know the benefits of asset-based loans, here’s what you need to qualify for one.
Loan Requirements
First, you must meet your lender’s minimum loan requirements regarding:
- Credit score. Although asset-based loans focus on collateral, your credit still matters. At ABL, borrowers need a minimum score of 660 to qualify.
- Loan size. Most lenders won’t lend below or above certain amounts. You can get ABL loans for anywhere from $75K to $50M.
- Loan term. The loan term is how long you have to repay the loan. ABL loans have terms of 12-24 months.
- Property type. Not all property types qualify for asset-based lending. For example, ABL loans are available for single-family, multifamily, and condo properties only.
- Experience. Depending on the lender, you may need to demonstrate past investment experience. Most ABL loans are available to investors of all experience levels.
Loan Terms
You must also agree to your lender’s loan terms regarding:
- Loan-to-Value (LTV). Loan-to-value measures how much of the property’s value is being financed. Most lenders impose a maximum LTV. For example, ABL bridge loans are available at LTCs of up to 85%.
- Loan structure. Asset-based loan payments can be structured in many ways. For example, many ABL loans charge interest-only payments during the loan term, with the principal due at maturity.
- Interest rate. The interest rate determines your cost of borrowing. The lower the rate, the better. ABL offers loans with rates as low as 6.85%.
- Origination Fees. Lenders charge origination fees (aka points) to process your loan. At ABL, we offer the only true zero-point program in the industry.
- Prepayment penalty. Some lenders charge a prepayment fee if you pay off your loan early. However, at ABL, you can pay off your loan as early as you want, penalty-free.
5 Tips to Qualify for an Asset-Based Loan
To qualify for an asset-based loan with favorable terms, follow these final tips:
1. Maximize Property Value
The higher the property’s value, the more collateral there is to back the loan. Lenders want to see strong before- and after-repair values to support the loan.
2. Keep Clear Financial Records
Avoid unnecessary delays and rejections by maintaining clean financial records, including deeds, appraisals, tax returns, and rental income statements.
3. Present a Clear Exit Strategy
Reassure lenders that you’ll repay the loan in full and on time by presenting a clear exit strategy. This could be a plan for how you’ll sell the property or refinance it into a long-term rental.
4. Demonstrate Your Experience
Lenders prefer investors with successful investment experience. Highlight past acquisitions, renovations, and flips to win their trust.
5. Work with an Experienced Lender
Not every lender is created equal. Choose one who’s funded similar projects to yours, understands your market, and can tailor loan terms to your investment strategy. For example, ABL’s local experts are ready to answer any of your financing questions. Contact us today!
Fund Your Next Real Estate Investment with ABL
Asset-based loans can be the key to keeping your next real estate deal moving, especially when conventional financing isn’t an option. With fast funding, flexible terms, and a focus on value over personal credit, ABL makes it easier to seize opportunities quickly.
Don’t wait to make your next move. Pre-qualify for an asset-based loan from ABL today to bring your next real estate project to life.