If you’ve ever dabbled in alternative financing, you’ve probably heard the term “asset-based lending” by now. ABL financing is a type of loan that uses a business asset as collateral. That way, you can qualify for better interest rates and terms, regardless of your credit rating. Are hard money loans the same thing as ABL financing?

Like Asset-Based Lending, But Not the Same

ABL loans can use a variety of assets as collateral. Some businesses use unpaid invoices or equipment to secure the loan. Others use a piece of real estate or a vehicle. It’s even possible to use inventory to back ABL funds.

On the other hand, hard money loans only revolve around real estate purchases. You don’t need to come up with collateral on your own, however. The property you want to buy takes the place of the collateral.

The purpose of a hard money loan is always related to purchasing real estate. You can use it to flip a house, buy a commercial property for your business or invest in real estate.

ABL financing as a category is much broader. There are asset-based loans for purchasing equipment, getting working capital, or buying inventory.

The Benefits of Hard Money Loans

Both ABL financing and hard money lending share several benefits. They’re both types of alternative financing designed to make it easier for average businesses to qualify.

Traditional loans have requirements that are difficult for small businesses to meet. Normally, your business has to show proof of strong annual revenue, stable cash flow, and excellent credit. Making late payments to suppliers can cause problems for your credit, and you may not qualify for that traditional loan you’ve been hoping for.

With hard money lending and ABL financing, your credit rating is less important than the value of the asset you use as collateral. This provides an opportunity for everyday businesses to get the financing needed to reach important goals, such as purchasing a location for your business.

Types of Clients That Use Hard Money Lending

A hard money loan is designed for short-term financing. The terms and conditions aren’t meant for long-term repayment. How can this be compatible with expensive real estate transactions? Essentially, hard money lending is supposed to fill a temporary need for capital. It can help you close on a property while you’re selling a different property. You can also use temporary financing while you wait for a traditional loan to get approved.