What Is Transactional Lending and How Does It Work?

Transactional lending offers a specialized financial solution for time-sensitive transactions. It provides rapid capital to facilitate the quick purchase and immediate resale of an asset. This funding serves as a bridge for entities needing to execute deals swiftly, playing a distinct role where traditional financing would be too slow or unsuitable.

Defining Transactional Lending

Transactional lending, also known as flash funding, same-day funding, or ABC funding, is a short-term loan. Unlike conventional loans that focus on a borrower’s long-term creditworthiness, transactional lending primarily assesses the viability and profitability of the specific transaction itself. The loan is typically secured by the asset being purchased. This focus allows for a streamlined approval process, often bypassing extensive credit checks, income verification, or appraisals.

This type of financing is characterized by its brief repayment period, which can range from the same day to within a week or up to 14 days. The purpose is to provide capital for a brief interim period, allowing an intermediary to acquire an asset and then quickly sell it to an identified end buyer. Interest rates for transactional loans are generally higher than traditional lending, typically 2% to 12% of the loan amount, with additional origination fees often between 0.5% and 3% of the total loan. These costs reflect the short duration and higher perceived risk associated with rapid, asset-backed transactions.

The Transactional Lending Process

The process begins with the borrower identifying a motivated seller and simultaneously securing a committed end buyer for the asset. This dual agreement is crucial, as the existence of a ready buyer is a prerequisite for most transactional lenders. The borrower then approaches a transactional lender, providing documentation of both the purchase agreement with the initial seller and the sale agreement with the end buyer. Lenders prioritize the clarity of these contracts, as the loan’s repayment is directly contingent on the immediate resale.

Upon approval, which can happen swiftly, often within 24 to 72 hours, the lender provides the funds for the borrower to purchase the asset from the initial seller. This often involves a “double closing” or “simultaneous closing” where two separate transactions occur back-to-back, sometimes on the same day. The first closing transfers ownership from the original seller to the borrower, using the transactional loan funds. Immediately following, the second closing transfers ownership from the borrower to the end buyer, with the proceeds from this sale used to repay the transactional loan. The borrower’s profit is the difference between the purchase and resale prices, minus the loan costs and any associated closing expenses.

Common Applications and Participants

Transactional lending is most frequently utilized in the real estate sector, particularly by real estate wholesalers. Wholesalers employ this funding mechanism for “double closings,” where they secure a property at a discounted price from one seller and immediately resell it to another buyer at a higher price. This strategy allows them to profit from the spread without using their own capital or taking on long-term ownership of the property.

It is also applicable in situations where assigning a contract is not feasible or desired.

Beyond real estate wholesaling, transactional funding can support other short-term investment opportunities, such as bridge financing for quick acquisitions or back-to-back sales of various assets like collectibles or luxury goods. The primary participants in transactional lending are specialized private money lenders and hard money lenders. These lenders are distinct from traditional banks; they are willing to provide capital for deals that require speed and where the asset’s rapid turnover serves as the primary security.

Borrowers are typically investors who have a defined exit strategy and a confirmed end buyer, ensuring the swift repayment of the loan.