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A traditional bank loan can help a commercial business grow, but sometimes, business owners may need to opt for other financing methods. If your Boca Raton commercial enterprise needs money quickly or doesn’t qualify for a standard loan through a bank, you may want to consider a commercial hard money loan. This type of financing is offered through hard money lenders like Titan Funding to help business owners reach their goals. We’ve created this guide to help you understand more about commercial hard money loans, including the pros and cons of this type of financing.

What is a Hard Money Business Loan?

Hard money loans are a type of private money loan backed by real property. The real estate acts as a form of insurance or collateral or, in the case of hard money loans dealing directly with property, the basis for the loan. a business meeting with two men and three women going over commercial loan documents Commercial bridge loans, a specific type of hard money loan, are loans from private money lenders that can be used to either rehabilitate properties or pay off older loans on a commercial property. Business entities can turn to these types of loans when they quickly need money to secure a property or to make business-related improvements to the property. Commercial bridge loans can also be used as a short-term source of capital, or a cash infusion, as the business searches for traditional forms of capital elsewhere. Some of the most common applications for commercial bridge loans include:

  • Meeting payroll obligations.
  • Expanding a product line or opening a new location.
  • Buying out a business partner.
  • Improving a commercial property for refinancing purposes or to sell it entirely.

Bridge loans are available to both small and large businesses to help ensure business operations or forecasted plans proceed smoothly. Businesses or individuals can generally apply for commercial bridge loans for the following types of properties:

  • Industrial buildings, such as manufacturing centers, factories, and storage warehouses.
  • Multi-family buildings, such as apartments, condos, and duplexes, triplexes, or quadplexes.
  • Office and retail spaces.
  • Mixed-use properties that include spaces zoned for both commercial and residential use.

Contact Us for More Commercial Bridge Loan Information

How Do Commercial Hard Money Loans Work?

With a typical bank loan, you must have a decent credit score and a good financial history if you want to qualify. Hard money lenders won’t consider your credit score when determining whether to approve your loan request. Instead, they’ll require you to have real property to put up as collateral. This means the real estate you or your business owns can help you secure the funds you need to expand and grow. Sometimes, you can use the property you’re looking to buy with the loan as collateral.

Hard money lenders have more flexibility when determining loan terms and interest rates than banks and credit unions, so you may have some room for negotiation when you apply for your loan. Most lenders will base your loan amount on the loan-to-value (LTV) ratio of the property. To get the LTV ratio, they divide the amount you want to borrow by the property’s value. This provides lenders with an estimate of how much you can realistically pay back. A commercial hard money loan is a higher risk but can provide you with a quick influx of cash.

How Are Hard Money Business Loans Different From Traditional Business Loans?

Commercial bridge loans aren’t like traditional business loans through a bank or a mortgage loan through a traditional lender. Instead, they are fast, flexible tools that allow businesses to keep growing based on the holdings the company currently has or anticipates procuring through the loan. Some of the key differences between commercial hard lending and traditional bank loans are:

  • Fast loan approval processes: Hard money lending for commercial enterprises has been streamlined so businesses receive the capital they need quickly. Instead of the thirty days or even longer it may take for traditional mortgage loan approvals, hard money can be approved within a matter of days. This speed is crucial for every type of business, whether they need to secure funds for product manufacturing, to meet payroll obligations, or to improve a property and secure tenants.
  • Flexible terms: Different business ventures need different amounts of capital, and that amount can change in the middle of an ongoing project such as a property stabilization. Bridge loans are flexible, and businesses can be approved with adjustable terms.
  • Approval metrics: Traditional loans, especially on a property, require a lengthy history of tenant payments and other markers that help guarantee the lender’s money. Banks and other traditional lenders require stringent histories and offer little leeway. But private lenders offering commercial bridge loans are more open to exploring the possibilities of vacant or old properties and income potential when determining whether or not to approve a loan.
  • Basis in real property: Traditional loans are often secured based on the borrower’s credit history. These loans, however, evaluate the borrower’s equity in real estate holdings. As long as the borrower has enough equity in a property, then the lender can comfortably approve a loan relative to that equity. These give flexibility to small businesses that don’t qualify for SBA loans or property holders that have non-qualified properties.

When Should You Consider Applying for a Hard Money Business Loan?

Traditional loans and commercial bridge loans each have their own advantages, but they can’t be used interchangeably. Business owners and commercial entities should consider traditional loans for long-term loans and property purchases they expect to hold onto for years or even decades. However, they should prefer bridge loans under the following circumstances:

  • A real estate buyer needs funds immediately to purchase a property that has just recently been released on the market or which faces heavy competition.
  • A property owner needs funds to start an improvement or construction project while waiting for other sources of equity funding. A bridge loan can ensure the project isn’t interrupted or delayed.
  • Business owners are in the middle of a growth or expansion plan and need capital to cover the costs or short-term losses until the growth gains traction.
  • A real estate investment company is expanding their holdings to include a new property but needs transitional funds to cover renovations, upgrades, and marketing before the first tenants pay rent.
  • A business has been interrupted by a disaster, and the owners need capital for repairs or to continue business while the insurance claim is processed.
  • The business has plenty of properties and equity, but it needs an immediate cash infusion to cover liens and bills.

What Are the Pros of Commercial Hard Money Loans?

Using a commercial hard money loan to get the capital you need for your business has many advantages over a typical bank loan. Where most bank loans can take months to get approval, a hard money loan may be approved within a few days or as little as 24 hours. This rapid turnaround time means you can have the money you need to move your business forward in less than two weeks, with the average hard money loan providing your funds in about 10 days.

The flexibility that a commercial hard money loan offers means you can get approved even if you have less-than-stellar credit, liens, or bankruptcies in your financial history. The criteria for a hard money loan only require you to have property as collateral to back the loan, which makes the approval process less complicated than going through a credit union or traditional banking institution.

What Are the Cons of Commercial Hard Money Loans?

There are a few downsides of commercial hard money loans that you should be aware of before you decide to apply for this type of financing. The biggest drawback to hard money loans is that they usually come with a steep interest rate because these loans are considered risky for hard money lenders. Shorter repayment terms for hard money business loans are another downside. You may get a three- or five-year note with a bank loan, but most hard money loans need to be repaid within a year.

It’s also important to note that a commercial hard money loan may require you to have a larger down payment than a traditional one of up to 30% of the loan amount. This can be a significant hurdle for some businesses to overcome. The more money you put down, the better your interest rate might be.

Different Types of Commercial Hard Money Lending Programs for Real Estate Investors

Just like there are different types of business or personal loans through traditional lenders, there are different types of commercial hard money loans. Some of the most common types of programs include:

  • General commercial loans, which give businesses more flexibility and speed in buying commercial or industrial space.
  • Fix and flip loan programs, which give real estate investors the capital to both purchase a residential or commercial property and make the necessary improvements to put it back on the market for resale. Some lenders separate out multi-family bridge loans as specialized fix and flip loans for larger multi-family properties.
  • Bridge loans for refinancing, which property owners can use to improve a property to meet standards held by traditional lenders.

Each of these loan programs and dozens of individual hard money commercial loans can help fuel a business for future growth and sustainability. At Titan Funding, we provide investors and borrowers with opportunities to grow their holdings and continue their businesses. Contact us to learn how we can help your business. Wanting to learn more on your own? Read more about our top tips and tricks for investing in commercial real estate.

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