Tired of banks and traditional lending sources that want a mountain of documentation to approve and fund your loan? Asset-based lending is a way to buy real estate investments in the western United States with less requirements than most lenders.
Competition for houses became fierce in the mountain west after the COVID-19 pandemic. The real estate markets in Utah, Idaho, Colorado, Arizona, Montana, Wyoming, Texas, and parts of Nevada were flooded by remote workers looking to buy homes. This pushed up real estate prices, which were also fueled by near zero interest rates that were being offered at the time.
In order to compete with these cash buyers in this feeding frenzy of 2020 and 2021, buyers of real estate had to get savvy and find options other than bank loans and traditional financing. Enter Asset-Based Financing.
Asset-based loans are a type of “Hard Money Loan,” or “Bridge Loan.” Any loan that uses an “asset” as collateral, with the collateral being the “security” for the loan, is called an asset-based loan.
This is a type of loan which has enabled some buyers to have a competitive advantage. Traditional financing options can be slow and come with a ton of requirements, while asset-based loans have fewer requirements and fund a lot faster. Buyers armed with these types of bridge loans were able to compete with the influx of cash buyers migrating into their markets.
And unless you’re working with all cash to buy properties, you need to understand your options for loans to buy real estate in the mountain western U.S.. Companies like High West Lending and Private Money Utah specialize in asset-based loans for both real estate investors and regular homeowners. This comprehensive guide will explain how asset-based lending works, its benefits, and how to qualify.
What is Asset-Based Lending for Real Estate?
Asset-based lending, sometimes referred to as “ABL” is a type of hard money loan secured by real estate that is not based primarily on the borrower’s credit score or income – unlike a lot of loans out there.
For fix-and-flip real estate projects, asset-based lenders focus loan approvals based more on the After Repair Value (ARV). With rental properties, they place more importance on the current or future rental income, rather than the credit score of a borrower.
Unlike conventional mortgages, asset-based loans tend to cater more to real estate investors. But bridge loans can be used by homeowners to accomplish certain goals such as to buy a new home similar to all cash, or to buy out an ex spouse in a divorce settlement Other asset-based lenders provide funding for real estate investors to purchase and refinance real estate investment properties across the western United States.
Eligible Properties
HighWest Lending provides asset-based loans for various property types in the western states, including:
- Single-family homes
- Multi-family properties (2-4 units)
- Small apartment buildings
- Mixed-use properties (both residential and commercial)
- Light industrial commercial properties
- Residential land and commercial land with development potential
The Lending Process
These steps apply specifically to real estate investors, whereas homeowners may have more requirements. The typical asset-based lending process for real estate investors includes 7 general steps.
- Property information submission to provide information on the property only
- Property Valuation: Fast property valuation most often with no appraisal required
- Loan Approval
- Site visit to the property, title report ordered, insurance ordered, proof of borrower identity is obtained
- Funding takes place
- Loan term: period of time when borrower has the loan
- Loan payoff: the loan is finally repaid via a property sale or a refinance
Key Terminology
Understanding these terms is essential when navigating asset-based lending:
- Loan-to-Value (LTV): Interest rates tend to be based on the loan to value ratio rather than the borrower’s credit score. This is the loan amount as a percentage of the property’s value.
- After Repair Value (ARV): Used primarily on fix and flip property loans, this is the value of a property after renovations or repairs.
- Loan-to-Cost (LTC): The loan amount as a percentage of the total cost for a project.
- Debt Service Coverage Ratio (DSCR) or DSCR Loans: For properties that earn income from rents, this is the ratio of net operating income to the loan payments to be paid to the lender.
- Points: Loan fees charged by the lender, or broker, as a percentage of the loan amount. 1 point is equal to 1% of the loan amount.
- Interest-Only Payments: Loan payments that cover only the interest payment and not any payments toward the principal of the loan.
- Draw Schedule: The plan for disbursing repair or renovation loan proceeds in stages rather than a lump sum all at once.
Example Scenario
Let’s consider an example in Missoula, Montana:
A real estate investor finds a property in Missoula, Montana in need of repairs that is listed at $250,000. She determines that the cost of the repairs to be $45,000. Her estimate of the “After Repair Value” (ARV) once the repairs are completed was $345,000. Through High West Lending, she got an asset-based loan that looks like this:
- Loan Amount = 85% of purchase and 85% of repairs = $250,750
- Down payment needed at closing: $44,250
- Loan term: 12 months
- Interest rate: 12%
- Loan fees: 2 points (2% of the loan amount)
This loan enabled this Montana real estate investor to repair and renovate the property and later resell it for a nice profit!
Types of Asset-Based Loans for Real Estate Investors
High West Lending offers a variety of asset-based loan products, on different property types, in several western states:
Rental Property Loans
High West Lending offers both bridge loans and “rehab to rent” loans for real estate investors who are buying rental properties in the western United States. This includes apartment complex loans and small multifamily loans for properties with 2-4 units.
Benefits:
- Real estate is a good inflation hedge
- The potential for monthly cash flow
- The potential for long-term increase in the property’s market value
Drawbacks:
- Increasing long-term interest rates
- Vacancy risk
- Ongoing maintenance costs
When it’s a good fit: Asset-based rental property loans from High West Lending are ideal for real estate investors who:
- Want to make cash offers to be competitive on property purchases
- Understand the rental markets in the western states where they are purchasing properties
- Have cash reserves for ongoing maintenance costs
- Have feasible plans for paying the loan back in a short period of time
Bridge Loans
Bridge loans are a type of asset-based loan that are used for a variety of purposes. Bridge loans can be used to purchase a property quickly, similar to all cash, to buy out partners in a property, to refinance debt on a property, to develop or improve a property, and more. High West Lending offers several types of bridge loans in western states.
Benefits:
- Less requirements as compared to other lenders
- Faster funding
- Common-sense approach creates flexibility in loan terms offered
Drawbacks:
- Shorter loan durations of bridge loans require a 6-12 month exit plan for paying the loan back
- More conservative approach to current and future value
- Property at risk of foreclosure if you can’t make payments on the loan or you default on the loan (but this is with any loan)
When it’s a good fit: Bridge loans are a fit if someone:
- Needs a fast funding loan for a purchase, or other situation
- Has feasible plans for paying the loan back in 12 months or less
- Cannot meet traditional lending requirements
Fix-and-Flip Loans
Asset-based loans that are used for the purchase and rehab of a property are often called, “fix and flip” loans. These are short-term loans with loan durations of usually 90 days to 180 days. High West Lending offers longer loan terms of 12 months to real estate investors on most projects to give them more time.
Benefits:
- Fast funding timeframe
- Loan amounts based on a percentage of total project cost or the “After Repair Value” (ARV)
- Less requirements as compared to other lenders
Drawbacks:
- Higher interest rates as compared to conventional loans
- Risk of holding the property longer than budgeted for
When it’s a good fit: Asset-based, fix and flip, property loans from High West Lending are ideal for real estate investors who:
- Are looking to buy property to repair, renovate, and then resell
- Have a knowledge of their local real estate markets in western states
- Have feasible plans for paying the loan back in a short period of time
Cross-Collateralization Loans
High West Lending has cross-collateralization loan options, whereby you use multiple properties as collateral on one loan to get a higher loan amount.
Benefits:
- Access equity in a property without taking out a separate loan on it
- Get a larger loan amount with multiple properties used as collateral
- Can use different properties located in various western states
Drawbacks:
- Multiple properties at risk of foreclosure if you can’t make payments on the loan, or if you default on the loan (but this is with any loan)
- Higher closing costs with multiple properties, in some cases not all
When it’s a good fit: Cross-collateralization may be an option for real estate investors who:
- Have equity in their real estate already owned.
- Want to avoid selling the real estate to have access to funds
- Have a clear plan for paying back the loan in 12 months or less
- Have income from the properties to make payments on the loan
Comparison of Asset-Based Loan Types:
| Loan Type | Typical Term | Interest Rate Range | Best For | Key Advantage |
| Rental Property | 1-2 years | 10.5% – 12% | Funding fast | Less requirements |
| Fix and Flip | 6-12 months | 11% – 12% | Funding fast | Higher loan amt |
| Bridge | 1-2 years | 10.5% – 11-12% | Funding fast | Less requirements |
| Cross-Collateral | 1-2 years | 10.5% – 12% | Low or no down payment | Higher loan amt |
Benefits of Asset-Based Lending for Real Estate
Asset-based lending through High West Lending has some obvious, and not so obvious benefits, over traditional loans for real estate investors in the western U.S.:
More Flexible Parameters for Loan Approval
High West Lending’s asset-based loans apply to unique situations or properties that don’t meet conventional lending requirements.
Faster Funding than Other Loans
Many asset-based hard money loans can fund in a matter of days if speed is required.
Potential for Higher Loan Amounts
Because asset-based loans take into account the future value of a property you may get a higher loan amount as compared to other lenders. Or you can get a larger loan amount with multiple properties used as collateral.
Drawbacks and Risks of Asset-Based Lending
While asset-based lending has great benefits, borrowers should understand the risks in getting asset-based loans such as hard money loans and bridge loans.
Foreclosure Risk
As with any loan that uses real estate as collateral, failure to repay the loan can result in foreclosure on the real estate. The lender has the right to foreclose on the property if you are unable to make payments, or pay the loan back in the loan term. This means the lender can sell the property as a remedy to get the loaned funds returned.
Mitigation strategy: Maintain adequate cash reserves to cover loan payments for at least 4-6 months. Add contingency funds into your budget.
Interest Rate Rises
If long-term interest rates go up after you purchase or refinance a property, you may have difficulty in refinancing or selling the property.
Mitigation strategy: Make sure your numbers still work, even at the higher interest rates. Especially if you expect to be headed into a higher interest rate environment.
Holding Loan Longer than Anticipated
A project delay or other unexpected delay can force you to hold a hard money loan longer than planned, which would result in paying more interest on the loan than planned for.
Mitigation strategy: Have plans to hold properties longer if necessary, and factor market cycles into your timing. Budget for contingencies, at least 5% of the costs, but the more the better.
Asset-Based Lending vs. Traditional Loans
Understanding the differences between your financing options helps you select the best approach for your specific investment strategy:
| Feature | Asset-Based Lending | Traditional Bank Loans | |
| Primary Focus | Loan to value ratio | Borrower credit & income | |
| Interest Rates | 11% – 12% | 6% – 9% | |
| Loan Term | 6 months to 1+ years | 15 – 30 years | |
| Funding Speed | 1-2 weeks | 30 – 45+ days | |
| Max LTV | 85% (varies) | 70% (varies) | |
| Credit Requirements | Usually no min score | Min scores required | |
| Documentation | Light | Heavy | |
| Prepayment Penalties | Usually none | Almost always |
When to Choose Each Option:
Asset-Based Loans from High West Lending are recommended for the following situations:
- You need faster funding than traditional banks
- You want to make a competitive offer to purchase a property
- You don’t have time for a full documentation loan, or you have less than perfect credit
- You’re buying real estate to renovate and resell, or to rehab and rent, and have a future value, or “After Repair Value” (ARV)
Traditional Bank Loans are preferable when:
- You have time for a full doc loan and you aren’t in a hurry to get funding
- Your biggest need in a loan is to get the lowest interest rate possible
- The property needs no repairs, and is rented, or rent-ready
- You meet all of the traditional lender’s requirements
How to Qualify for an Asset-Based Loan
Every lender has a different set of requirements, so check out each of their requirements to see if you qualify before you apply. High West Lending has specific requirements for individuals and real estate investors who are applying for asset-based loans in western states including:
Approval Requirements: the following is a list of basic, and very general requirements for loan approval and may NOT include additional requirements that may also be imposed for final loan approval:
- Property Type and Location: Properties may be residential, apartment complexes, multifamily, and commercial and must be located in one of the states to follow: Colorado, Utah, Montana, Idaho, Wyoming, Arizona, Nevada, Oregon, Washington, and Texas.
- Down Payment or Equity: Potential borrowers must have equity in a property they already own on a refinance, or have down payment funds on a new purchase.
- Borrower Experience: First-timers may qualify but if you have experience, put together a resume or summary of experience.
- Opinion of Value: There must be sufficient evidence of property value to make the loan, to be determined by an analysis. Often no appraisal is required and lenders can use broker price opinions (BPO), or do an internal analysis of value.
- Viable Exit Plan: A realistic plan for paying back the loan, and often, a back up plan for your primary plan.
The Application Process
- Initial Inquiry: Contact High West Lending to provide basic details about your funding request and get a yes or no answer.
- Get Final Approval: Provide information about the property, your experience, property photos, and property value to get final approval.
- Final Funding Requirements: Get proof of clear title and proof of insurance. Order opinion of value. Borrower to submit additional documentation, including borrower information, purchase contract if purchase, repair estimates, etc.
- Approval and Closing: Upon approval, loan documents are prepared, and closing is scheduled.
- Funds Disbursement: Purchase funds disbursed at closing, with renovation funds typically disbursed according to a draw schedule after closing.
Tips for Approval
- Back up your value assumptions: Provide the lender with a realtor’s opinion of value or comparable properties to back up your estimates of value.
- Hustle to get inspections done and estimates: Try to get as many inspections done by professionals early on in the process to rule out major property issues. Do your best to get accurate repair estimates and materials quotes as soon as possible.
- Have a Reliable Exit Strategy: Have a primary and secondary plan for paying the loan back.
- Have Financial Documentation Ready: Put together a personal financial statement and schedule of real estate, templates can be found online.
- Resume or Summary of Experience: Have your resume handy, or if you have experience in real estate, put together a one page, summary of experience.
Common Reasons for Denial
- Loan to value ratio is too high
- Property value is not high enough
- The size or complexity of the project is too much for the borrower’s level of experience
- The borrower has inadequate cash reserves for budget overruns or monthly payments
- Property is in a declining market with too much inventory
Choosing an Asset-Based Lender (Real Estate)
By choosing the right lender you will save time and money. Here’s what to consider when picking your asset-based lenders for real estate:
Key Considerations
- Regional Lender: Choose a regional lender like High West Lending with specific knowledge of the mountain west and western states where you’re targeting properties, or where you may already own real estate. For example, don’t use a lender from California or New York if your project is in Montana. Try to find a lender like High West Lending that lends within your specific geographic region.
- Reputation and Reviews: Do you know anyone that has closed a loan with these lenders you are choosing? See if there are “real” online reviews from people that have actually closed loans with this company. Beware of lending companies with fake reviews, there are a few hard money lending companies out there that pay for reviews.
- Responsiveness: Test lender communication during the initial inquiry process to see if lenders are responsive.
- Total Costs: Get a list of all of the loan fees that you will pay at the closing on the loan and any fees you’ll pay after the loan closes. For example, if you have a reserve fund to make repairs to the property, the lender may charge a “draw fee” every time they disburse funds from the reserve.
Questions to Ask Potential Lenders
- What is your typical interest rate range for this type of property or deal? A lender may not be able to give you exact terms, but at least a range of interest rates that they typically charge on a similar transaction.
- How much down payment do you require for this type of transaction?
- How do you determine value, appraisal, BPO, or another method?
- Have you ever closed a loan in this city, state?
- What is your process for repair or construction draws, and how much do they cost?
- What are all of your fees charged before the loan closes, at the loan closing, and after closing?
- Do you require monthly payments?
- Do you have a minimum credit score?
- What are ALL of your requirements for funding on this type of transaction?
- What is your average funding time frame? Under a week? Closer to 2 weeks?
High West Lending offers phone consultations to help borrowers in western U.S. states to determine what funding options are available. Whether you’re flipping properties in Denver, Colorado, building a rental portfolio in Bozeman, Montana, or developing small multi-family properties in Cheyenne, Wyoming, High West Lending offers all types of asset-based loans.
Conclusion
Asset-based lending provides individuals and real estate investors in western states with a better alternative to conventional loans. With a focus on property value rather than borrower credit and income, asset-based loans offer fast funding timelines and more flexibility in loan terms.
The right lender not only provides funding, but also brings expertise and knowledge to help you find the best funding for your specific transaction or situation. Check out your asset-based lending options with High West Lending!
Author: Corey Dutton, MBA, PLM, Private Money Lender