A commercial hard money loan is a non-conventional commercial real estate loan that is not made by a traditional bank. This type of commercial financing has been in use for over 50 years. Such loans usually have a first lien on commercial property. If a loan has a secondary lien, it is known as mezzanine financing.

Three Business Mortgage Loan Choices

There are three financing options for most commercial real estate scenarios: traditional banks, intermediate lenders and hard money lenders. The primary rationale for a small business considering a commercial hard money loan is that traditional or intermediate commercial financing options are not viable.

In those situations where traditional banks and intermediate lenders both say “No,” it then makes good business sense to explore under what terms an alternative commercial loan might be available. Many viable small business projects can be funded only via a hard money lender. Before accepting “No” from the traditional banks and intermediate lenders as the “Final Answer,” a prudent small business borrower should determine if another lender will say “Yes.”

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For anyone seeking residential hard money loans, time is of the essence. The major reason that people seek this kind of unconventional financing is because banks simply take too long, or they are unable to meet the increasingly strict criteria that the lending institutions put forth.

There is some confusion over what the money can be used for. One reason for the confusion is that lenders and brokers use different terminology. In some cases, they mean to confuse the borrower. In others, they simply forget that everyone is not as “savvy” as they are. Below, you will find some common terms used by financers and what those terms usually mean.

Acquisition loans are hard money home loans used to purchase a property. The amount available will vary depending on the lender. It is usually a percentage of the appraised value. Commercial banks typically require that you have around 20% of the purchase price. Else, they will charge a higher interest rate. Private lenders may be able to finance the entire amount and the closing costs are usually lower.

Construction loans may be used to build a residence, but they can also be used for repairs, expansions or upgrades. Current homeowners or real estate investors may be interested in these types of hard money home loans. Conventional lenders typically require that the property in question is or will be your main residence before they will approve financing. Private lenders are usually more flexible.

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A hard money loan allows the borrower to receive a loan based on the value of real estate he or she owns. The real estate is used as collateral. These loans are issued at a much higher interest rate than conventional loans and are not given by any commercial banks but instead are arranged by private investors.

Since the Hard Money loans are made by private investors a borrower’s credit score is not consider due to the fact that the loan is secured by the value of the property that is being put up as collateral. However, with the current state of the real estate market, hard money loans are not that easy to obtain these days since the real estate market has soften and property is selling for far less than what it was a couple of years ago.

Below are a couple of other non-traditional ways to get financing for your business:

Credit card factoring or Merchant advance for small businesses
Credit card factoring also known as a Merchant advance is when a lender gives your business cash upfront based on your future credit card sales. It is paid back by using a percentage of those future credit card sales until the balance is paid in full. The actual amount that the borrower can receive is based upon the business’s monthly credit card receipts.

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