Frequently Asked Questions

Hard money loans are asset-backed loans. The person seeking funds secures their loan using real property. A hard money loan is a loan that is usually issued by a private firm, and the interest rates may be higher than those for residential loans or more conventional commercial loans. This is because the lender is taking more of a risk in issuing the loan, and this understanding is shared by both parties. Such a loan could be used for a number of different things. If the loan is for a specific project, such as construction, that project’s duration is probably anywhere from a few months to a few years. A hard money loan might be an asset-secured loan (and it may have a relatively high interest rate based on risk), which is one of the reasons hard money loans offer value to customers who cannot secure more traditional means of financing for a project or purchase. A hard money loan could also be one that involves a foreclosure, or a situation in which a mortgage is in arrears. Unlike more traditional means of funding, while hard money lenders will look at the income and credit score of the loan applicant, the primary reason a hard money loan is approved has to do with the value of the asset that is put up as collateral to secure the loan. That is why this type of loan is referred to as an asset-backed loan, because the asset is offered up as collateral and can be forfeit if the borrower ends up in default. The collateral therefore reduces risk for the lender and, the greater the collateral, the more likely the lender is to be able to approve the loan. (If the borrower defaults, the lender is typically the first creditor to receive remuneration, such as in the case of a bankruptcy trustee paying out collected funds to those owed money.) In a hard money loan, the loan-to-value (LTV) ratio is determined using the purchase price of the property in question (the amount that the lender could realize if the collateral were seized and sold) versus the amount loaned to the borrower. One of the assumptions of a hard money loan is that both the lender and the borrower enter into the transaction freely and willingly, and that neither of them is concealing relevant details. The term “hard money loan” is not one that you will find outside of North America, typically. A hard money loan is an alternative to more traditional financing, in which a borrower uses his or her assets to secure the loan because more traditional methods of credit cannot be extended to that borrower. The financial services industry is constantly evolving, and market volatility as well as short and long term market trends (such as the collapse of the real estate market in past decades, including the much talked about “housing bubble” that led to the current recession we are either still experiencing or only barely recovering from, depending on who you ask) determine values on an ever-changing scale. Interest rates on hard money loans are therefore higher in order to compensate the lender for the increased risk incurred. The benefit to the borrower is that, while the interest rate paid is higher than that paid in a traditional financing model, the loan is made available to the borrower (when, without that hard money loan ,the borrower were not be able to obtain financing at all). This is the same reasoning behind “subprime” housing loans and the justification for this type of financing: Paying more for the increased risk is preferable to not being able to obtain financing at all. It is possible to get a “blanket mortgage,” or to “cross collateralize” a hard money loan, if the LTV, or loan-to-value ratio, isn’t high enough to justify the lender making the loan. This involves placing another lien on a different property owned by the borrower. Because in most cases an individual does not necessarily have multiple asset properties that could become collateral for a loan, blanket mortgages are more often used in commercial scenarios than in personal ones.

A merchant is an entity that engages in commerce, selling goods or services. This means that any given merchant expects, as long as it stays in business, to be earning future sales. A merchant can choose, just like someone who sells annuity payments in exchange for a lump sum, to sell a portion of its future credit and debit card sales in exchange for a lump sum cash advance against those future sales. Such advances are usually shorter-term arrangements of a year or two at most with relatively small payments. In other words, they are a short-term, fast-cash liquidity solution for those engaged in business who may be feeling a temporary cash flow squeeze. One of the most frustrating aspects of any small business is that cash flow can be poor even when sales are brisk and the business is doing well overall. If you don’t have the cash you need for immediate payments of expenses that are due in the short term, knowing that you’re going to see banner sales a month from now doesn’t do you a whole lot of good, especially if you need to make an immediate purchase or you have bills that must be paid now in order to ensure continued operation. Taking a cash advance against a percentage of your future sales is a great way to give your business the liquidity it needs to continue operating. It’s important to make the distinction between a loan and a cash advance. Cash advances are NOT loans. They are an exchange of part of future sales. What this means is that a cash advance lender is not bound by the same loan restrictions as a lender who is engaged in loans per se. Interest rates on cash advances are thus correspondingly higher than those charged by banks for loans. The benefit to the cash advance lender is obvious; the benefit to the borrower is that he or she can obtain needed cash quickly when those liquid funds are required. The higher interest paid is the fee paid for this speed and convenience, not to mention the greater leverage the liquidity possesses inherently. While interest rates are higher, a cash advance does have some advantages over a more conventional loan. For example, rather than making payments of a specific, agreed on amount as one would with a loan, if a merchant agrees to pay a percentage of future sales in exchange for the cash advance, those payments will be scaled according to the merchant’s actual sales. This means it is easier for the merchant to repay the cash advance than it would be to repay a conventional loan because the payments are scaled to the merchant’s ability to pay. As we’ve already hinted, cash advances can be put through much more quickly than traditional or conventional loans, so the merchant gets access to liquid cash faster than he or she otherwise might. Cash advances are popular, for example, in the retail sector, where it is harder for business owners to qualify for bank loans.

A stock loan, at its most basic, involves taking a loan against a security that one holds. This allows the borrower to solve a very important issue when it comes to cash flow and liquidity. A stock is purchased as a capital investment. It is held for a time and then sold, when market dynamics dictate is most advantageous to the seller. But if you are forced to sell a security early, you may not get the full value of the capital investment, and you may even take a loss. Stock loans allow the owner of the stock to use the stock as collateral against a loan of liquid cash, which preserves the value of the borrower’s portfolio while reducing the risk for the lender. In the case of international stock loans, clients not based in the United States can use stock that meets certain requirements to obtain non-recourse loans in the denomination of their choice. In the event of loan default, those international clients forfeit the stocks used as collateral, but nothing else. In order to preserve your portfolio’s long-term viability, we at Infiniti Funding can provide you with a stock-secured loan that gets the cash you need in your hands without reducing the long-term value of your investment while your capital appreciates. There is no danger of losing money with short-term market fluctuations, either (at least, no more danger than usual) because you don’t cash out your stock. Rather, you use the stock as collateral and avail yourself of the short term loan, then repay the loan per the loan terms when your long-term financial situation improves. Stock loans are a great way to diversify your portfolio, too, shoring up your financial position while your long-term investment continues to appreciate. To qualify for stock loans, the securities involved must meet certain daily dollar averages. The staff of Infiniti Funding can discuss these requirements with you. Please note that Infiniti Funding cannot offer non-recourse stock loans to citizens of the United States, or against securities that are listed in the United States.

A commercial hard money loan is the same as any hard money loan, but the risks are substantially higher and the amounts involved are correspondingly higher. There are some differences when it comes to the regulation of commercial property versus residential property, and many commercial hard money loans are of shorter duration. This puts them in the category of bridge financing. A bridge loan is like hard money loan, but a bridge lender typically has more resources than smaller lenders and therefore has more leeway in taking greater risks on borrowers whose circumstances make them difficult fits for financing. A lender who cannot get a loan under more traditional commercial loan standards can therefore obtain a bridge loan from a bridge lender, even if there is some kind of financial distress involved (such as the property is in foreclosure or is not in a good market position — especially with construction projects, there are any number of issues that could arise that prevent the property owner from obtaining a more conventional commercial loan). A bridge lender might, for example, give a borrower a certain amount of time to buy back a collateralized property, and at the end of that relatively short duration, the property becomes the holding of the lender in exchange for the increased risk incurred by that lender.

When you receive a legal agreement to be paid a specified amount monthly or yearly until a specified total amount or number of payments have been met, that is a structured settlement. A structured settlement allows the entity paying to pay a larger total amount than it can currently or comfortably afford, which is often one way that companies avoid litigation in personal injury cases. It is often easier to agree to pay a large amount, but over time, than to go to court and risk receiving a judgment against the entity for a larger sum, all of which then becomes payable immediately. Higher interest rates and a general trend toward greater awards for litigants have contributed to rising popularity of structured settlements for resolving personal injury lawsuits and other torts. The premiums for annuities are lower because the “present value” of the structured settlement is lower for a deferred payment, versus an immediate lump sum payment, in an environment where interest rates are high. A structured settlement payment may also be called a “period payment” or “period payment judgment” depending on the situation (and whether a court was involved). Forty-seven of fifty US states have enacted legislation governing structured settlement protections. When a defendant agrees to pay a structured settlement to a plaintiff, the total amount of those payments becomes a tax-free payment. The law allows for the recipient of a structured settlement to use that structured settlement as a means of securing a structured settlement loan, selling all or part of the future payments in exchange for an immediate lump-sum payment in some amount negotiated by the lender and the borrower. Because the “present value” of money, particularly in an environment of high interest, is lower than the amount of the deferred payment, the lump sum received is typically less than the total value of the annuity payments. The assumption is that the borrower is willing to exchange that higher total value for the benefit of the lump sum funds immediately. In other words, money now is worth more to the person spending it than a greater amount of money later, but in the eyes of the lender, the exchange is one of a greater amount of value in future payments versus the cost to the lender of the lump sum paid out now. One aspect of a structured settlement that many recipients do not consider is that when you sign the paperwork agreeing to the structured settlement, it still takes several weeks before you start receiving payment. This is one of the reasons that cashing out of the structured settlement, or taking a loan against part of the structured settlement, is such an attractive option, especially to those who need liquid cash now and for whom waiting for the structured payments (or even the first of the structured payments) may not be an option. In other words, if your structured settlement is, let’s say, for a thousand dollars a month, but you need three thousand dollars of liquid capital right now in order to meet immediate obligations, waiting up to forty-five days for your first payment of a thousand, or knowing that you’ll have the three thousand total sometime within the next four months, is of little benefit. Taking a loan against all or part of a structured settlement can afford real value to clients who require immediate cash.

A bridge loan is similar to a hard money loan in that it is a loan secured by a real asset held by the borrower. The difference between a bridge loan and a hard money loan, however, is that a bridge loan is an even shorter-term loan involving commercial properties. The interest rates are higher and the total amounts are typically higher. Bridge loans are popular among borrowers who simply cannot obtain more conventional or more traditional financing, and the properties involved may be in some form of financial distress, such as foreclosure or a poor market position that has somehow hindered, at least temporarily, the value of the asset used as collateral. For example, a bridge lender might give a borrower a loan against a piece of property, but the borrower has to agree to buy back the property within a relatively short period of time. Failure to do so results in transfer of the real property from the borrower to the lender, which compensates the lender for the money paid out. The entire arrangement is built around the fact that a bridge lender assumes much more risk than a more conventional, traditional lender. The trade-off for the borrower is that he or she may not be able to obtain a traditional loan, but obtaining bridge financing is possible and makes the whole venture workable. The term “bridge loan” comes from the fact that bridge lending is temporary. It is a means of “bridging” the temporary financial distress of the real property collateralized. When the borrower’s business venture starts to come to fruition and he or she can qualify for better or more permanent financing, part of that new funding is used to pay back the bridge loan. According to open source definitions, “bridge loans are often used for commercial real estate purchases to quickly close on a property, retrieve real estate from foreclosure, or take advantage of a short-term opportunity in order to secure long-term financing. Bridge loans on a property are typically paid back when the property is sold, refinanced with a traditional lender, the borrower's creditworthiness improves, the property is improved or completed, or there is a specific improvement or change that allows a permanent or subsequent round of mortgage financing to occur.”

Also called a lawsuit loan or a pre-settlement loan, pre-settlement funding is a loan issued before a case is actually resolved. The assumption is that the plaintiff is going to collect some judgment or settlement as a result of the legal action, but because the plaintiff (also the borrower) needs money now, not later after the case has run its course, he or she borrows against the anticipated settlement, then repays the loan when the settlement is finally received. Many plaintiffs need liquid cash both for the legal costs associated with their case and for medical and other bills associated with personal injury scenarios. Pre-settlement funding is a way of providing for those clients’ needs while seeing them through the difficult period during which their case is heard and settled or resolved. Pre-settlement funding is a loan made on a non-recourse basis. This means that the borrower does not have to pay back the loan to the lender if the settlement or judgment does not, in fact, eventually come through. The lender assumes considerable risk against the likelihood that the borrower will win his or her case, and as a result charges a relatively high interest rate compared to a more traditional or conventional form of financing and lending. Because the need for liquid cash by those considering pre-settlement funding is usually quite great, pre-settlement financing agreements are resolved quickly and the borrower has the cash in hand fast.

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