The world of business can be extremely fast-paced, regardless of what industry you’re in. When a good opportunity arises, you may not always have the cash to hand to make the most of it. This is where hard money commercial loans come in.
A 2018 Federal Reserve survey found that 56% of businesses that applied for a loan or line of credit did so in order to acquire new business assets or pursue a new opportunity. Traditional banks offering approval rates of around 27% and lower depending on any outstanding debt or poor credit score. It can be difficult to take advantage of that good opportunity at the right moment. Also, traditional lenders can take too long with the approval process, preventing you from striking while the iron is hot. Hard money commercial loans are quicker and more suited to business than most traditional business loans.
What is a Hard Money Commercial Loan?
Hard money commercial loans are lines of credit extended to business owners, usually to expand their company. Hard money doesn’t come from a bank or traditional lender. It comes from a private investor or a group of investors who’ve formed a company to lend to businesses.
If you’re interested in buying a new commercial space to extend your business properties or if you’re planning to renovate for a re-brand or build an extension, these are all areas where hard money commercial loans can help out. Development and construction are the most common uses for hard money commercial loans.
Hard money loans are usually options for certain business entities, such as a limited liability company or an s-corporation. These kinds of loans are not for individuals.
Why are Hard Money Commercial Loans Different?
Firstly, they deliver fast. They have much quicker approval times than the average bank. This is vital in business and the investors know this. They are business people themselves, not mortgage providers who have a checklist to go through before approving the loan.
Another way that hard money commercial loans are different is that each application is assessed differently. The main criteria they look at is property. Often you can take a loan out against the value of the property that you are buying. Their interest rates will be much higher though, and this is one of the things that can scare people off them. This is because the investor wants to protect the investment that he/she has made. If you default on paying them back, they will come for your property. It’s risky, but if you’re confident that your expansion will work, then it’s all to play for.
The length of the term in hard money commercial loans is also quite a bit shorter than traditional loans. Usually, they are around two-three years maximum, although you may find an investor willing to stretch to a five-year loan, under specific circumstances.
Hard money commercial loan investors like to build long-term relationships with those that they lend to, as they know it can be profitable in the long run. David Voxlin, the founder of Craved, a retailer of U.K. craft food and drink, talks about the importance of building those kinds of relationships: “First of all, you have to be really comfortable with your investors and trust them completely. These are people that you will almost certainly have a very long-term relationship with, and unlike employees, you don’t have the option of letting them go.”
Why You Should Consider A Hard Money Commercial Loan
If you are a start-up and confident that your product or service is going to do well (according to market research, not just a gut feeling) but you need an injection of capital, then hard money commercial loans can be the perfect match for you.
Big banks aren’t particularly interested in providing smaller loans – it’s a lot of paperwork for not much return, particularly when loans are under $250,000. When you need to get something off the ground quickly, approaching lender after lender and going through a lengthy process, only to receive a “no” is wasting time when your competitors could be getting a step ahead.
Building a relationship with a hard money lender could pave the way for some unexpected bonuses in the future. Hard money commercial loan providers know about business and if they have confidence in you, they may ask you to partner on other deals at a later date.
Put simply, hard money commercial loans are one of the most viable ways for a small or medium business to take it to the next level.
If you are an investor based in Alabama looking to close on a good deal but don't have the cash on hand to do it, then an Alabama hard money lender can easily meet your needs. Everywhere you look t...