In the high-stakes world of real estate investing, speed isn't just an advantage, it’s the price of entry. When you’re staring down a deal that’s about to get snatched up by a cash buyer, you don't have time for the three-week appraisal loops or the bureaucratic red tape of a traditional bank. You need capital, and you need it now.
This is where hard money lenders come in. They provide the liquidity that allows you to scale, but not all capital is created equal. A term sheet might look straightforward on the surface, but the devil, and your profit margin, is in the details.
Before you put pen to paper on your next fix and flip loan or bridge loan, you need to look past the headline interest rate. At Bosson Capital, we operate with an operator’s mindset because we’ve been in your shoes. We know that a "yes" that takes four weeks to arrive is effectively a "no."
Here are the 10 critical things you must evaluate before signing your next term sheet.
1. Rate vs. Total Cost of Capital
Many investors make the mistake of shopping for the lowest interest rate. While the rate matters, it’s only one part of the equation. You need to calculate the Total Cost of Capital.
Look for origination points, processing fees, underwriting fees, and document preparation costs. A lender offering 9% with 3 points might actually be more expensive than a lender offering 11% with 1 point, depending on your hold time.
The Bottom Line: Don’t be blinded by a low rate: do the math on the total cash out of pocket at closing.
2. LTC vs. LTV: Know Your Leverage
Understanding how a lender calculates leverage is the difference between keeping your cash in the bank or tying it up in a project.
- LTV (Loan-to-Value): Based on the current or future value (ARV) of the property.
- LTC (Loan-to-Cost): Based on the total cost of the purchase plus renovations.
Most fix and flip loans are structured around LTC. If a lender offers 90% LTC, you’re only bringing 10% of the total project cost to the table. If they switch to a 75% LTV model, your down payment could skyrocket.
3. The Mechanics of the Draw Schedule
For a renovation project, the loan isn't just about the purchase price: it’s about the rehab funds. But how do you get that money?
Vague draw schedules kill momentum. You need to know:
- How many draws are allowed?
- Is there a fee for each draw?
- How fast is the inspection-to-funding turnaround?
Delayed draws mean contractors walk off the job. You need a lender who moves as fast as your crew: no delays, just clear answers.
4. Prepayment Penalties and Minimum Interest
If you’re an efficient flipper, you might be in and out of a deal in four months. If your term sheet includes a 6-month minimum interest clause, you’re paying for money you aren't using.
Always check for:
- Prepayment Penalties: Fees for paying off the loan early.
- Minimum Interest: A guarantee that the lender earns a set amount of interest regardless of when you exit.
Flexibility is key for bridge loans: ensure your loan structure matches your projected exit.
5. Direct Access to Decision Makers
This is the "Bosson Advantage." In the middle of a complex deal, the last thing you want is to be told your file is "with the committee."
When you work with a direct lender, you should have a straight line to the person making the final call. This removes bureaucratic layers and ensures you get straightforward feedback immediately. If a deal doesn't work, we tell you why: fast. If it does, we move.
The Action: Ask your lender, "Who actually signs off on this?" If the answer is a faceless committee in another state, expect delays.
6. Extension Options (Plan for the Unexpected)
Even the best-managed flips hit snags. A city permit delay or a supply chain issue can easily push your 12-month timeline to 14 months.
Don't wait until the loan expires to talk about extensions. Your term sheet should clearly outline:
- The cost of an extension (usually measured in points).
- The duration of the extension.
- The conditions required to qualify for one.
Clear terms upfront prevent a "gotcha" moment when the clock is ticking: disciplined underwriting means planning for the "what if."
7. Your Exit Strategy Matters (Refi or Sale?)
Lenders aren't just looking at the property; they’re looking at how they get their money back. If your plan is to hold the property as a rental, you need to ensure you qualify for rental property financing or a DSCR loan down the line.
If your lender also offers long-term options, the transition from a bridge loan to a permanent rental loan can be much smoother. At Bosson Capital, we look at the full lifecycle of your investment, not just the first 12 months.
8. Recourse and Personal Guarantees
Are you personally liable if the deal goes south? Most hard money loans are "recourse," meaning you sign a personal guarantee.
Understand exactly what you are pledging. Is it just the property, or are your personal assets on the line? Transparency is non-negotiable here. A reliable lender will be crystal clear about the risks and the requirements before you ever sign.
9. Speed of Funding: The "Real" Timeline
A term sheet is a promise, but the closing date is the reality. Ask for a track record. Can the lender actually close in 7-10 days?
In a competitive market, being able to close quickly is often more important than the interest rate. If you lose an off-market deal because your lender couldn't perform, that "cheap" loan just cost you six figures in potential profit.
The Goal: Execute fast, fund faster, and close the deal.
10. The Operator’s Mindset: Partnering vs. Transacting
Finally, ask yourself: Does this lender understand my business?
A lender with an operator’s mindset doesn't just look at a spreadsheet; they understand the street-level reality of a renovation. They know that a kitchen remodel takes time and that "value-add" isn't just a buzzword: it’s hard work.
Working with hard money lenders who have experience in the field means you’re getting a partner, not just a paycheck. You want a lender who can look at your numbers and say, "Your rehab budget looks a little thin for this neighborhood," because they’ve been there.
Take the Next Step
Don't let your financing be the reason you miss your next big flip. Whether you're looking for fix and flip loans or a flexible bridge loan, you deserve a lender who moves at the speed of business.
Ready to scale your portfolio? Get your deal reviewed today and experience the difference of direct access and disciplined underwriting.