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 to value. 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 your property.

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 most!

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 loan:

  • Quick money needed for a time-sensitive transaction
  • Commercial bridge funding (90 days to 1 year) to relocate your business
  • 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 financing problems.

A second glance at the short list above will illustrate another important point about commercial hard money: It is never your permanent financing.

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.

Private Loans

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 financing, flexibility.

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!

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