Hard Money Business Loans
Hard money business loans can bring money into your business when
everyone else tells you no.
Another of the potent asset-based finance techniques for business
owners, hard money business loans are loans collateralized by real
estate. Hard money lenders base their lending decision primarily on the
protective equity in the property rather than the creditworthiness and
income of the business borrower.
Hard Money Commercial Loans Are Everywhere
There are hard money lenders in all parts of the U.S. that will make
loans between 50 and 70 percent loan
. Loan to value, or LTV,
is the percentage of the current property value the loan amount
represents. So for a $1 million property, a $700,000 loan would be 70
LTV. If you have a pulse, a commercial hard money lender will allow you
to borrow at least 50% and as much as 70% of the appraised value of
If you control between 30 and 50 percent of the equity in a
property, most hard money lenders will loan you money, but if you need
the equity in cash for working capital financing or some other purpose,
the more equity you have, the more cash you will receive.
Why Borrowers Need Hard Money Business Loans
How Much $$$?
Hard money loans from $100K to $100 million are available to any
type of business entity and secured by virtually any type of property.
In hard money lending, collateral
and equity are what matter
In general, commercial hard money is used in situations where either
the borrower or the collateral (or both) fall outside of the
underwriting guidelines of traditional commercial lenders.
A bank, for
example, bases its lending decisions on the credit worthiness and
income of its borrower and how marketable the collateral for the loan
is in the event that the borrower defaults and it has to repossess and
sell that collateral. If any of these factors do not conform to the
policies of the bank or the many federal and state regulations that
govern what a bank can do with its money, the loan application will
most likely be denied – even if the loan is a very prudent and
potentially profitable one.
In other cases, borrowers might elect to bypass the long and cumbersome
process associated with traditional commercial real estate loans. This
can make good business sense when short-term costs are outweighed by
the potential for significant profit in the longer-term.
Here are a few examples of situations that may warrant a hard money
- Quick money needed for a time-sensitive transaction
- Commercial bridge funding (90 days to 1 year) to relocate your
- Credit problems, tax liens, bankruptcy financing, etc.
- Partially completed construction
- Property acquisition and renovation
- Loss of bank financing
This short list illustrates nicely the two main uses of commercial hard
money: to capitalize on opportunities and solve difficult business
A second glance at the short list above will illustrate
another important point about commercial hard money: It is never your
Generally, hard money lenders will make loans for
a year. Some will renew loans for a second year as long as the loan is
in good standing. But the short terms and above market interest rates
mean you will be well-served by having an exit strategy or a permanent
financing plan – before taking a dime of hard money, if possible.
Finding Hard Money Business Loans
Although commercial hard money lenders are present in most U.S.
markets, they are not always easy to find since their loan products are
outside of mainstream commercial real estate financing. Many prefer to
work exclusively with commercial mortgage brokers and receive referrals
from accountants, attorneys and bank loan officers. In metropolitan
areas, particularly larger ones, you may find several of them
advertising in your newspaper in the “Money to Loan” or “Real Estate
Loans” sections of the classifieds. If you decide to shop around
yourself, the first question you need to ask anyone you call is whether
their company makes asset-based commercial real estate loans. If the
answer is no, you are not talking to a commercial hard money lender.
In many communities, a private mortgage investor or an ad hoc
investment club making private loans may be your best option. Their
terms and fees can be much more attractive than what you will be
offered by the institutional hard money lenders you can find on your
own. Commercial mortgage brokers in your area can help you find these
private lenders and package your loan to both meet your needs and fit
their investment objectives, saving you a lot of time, frustration and
money. Since commercial mortgage brokers don’t get paid unless and
until you get your loan, you have little to lose by using one to find
the best financing for your bsiness.
The Good News & Bad News
First the bad news: Hard money business loans are quite expensive when
compared to traditional commercial real estate financing. The good news
is speed (funding in days, rather than months), low documentation
requirements, and perhaps most importantly in terms of business
Rain or shine, hard money lenders can put cash in your hands when you
need it most, helping you to overcome complex financial obstacles
quickly and effectively and allowing you to seize good business
opportunities – before your competitors can!