Hard Money Business Loans: A Tale of Two Businesses

When it comes to hard money business loans you take out for your business, consider carefully, whatever your pledging.

 Sally Jones lives in a beautiful picturesque tourist town, where she owns and operates a restaurant.  Then the especially ponderous local city council demands Sally make some extensive cosmetic changes to the exterior of her restaurant, “to preserve the historic character” of the neighborhood they say. If she doesn't make these changes, she will have to shutter her business right in the midst of peak tourist season.

 She needs money yesterday. She's heard about hard money does a quick cursory search online,  to find a "hard money provider," and the one she finds offers her a merchant cash advance instead.  She doesn't think much of it,  applies, and the money quickly comes in. She makes the necessary cosmetic changes. Business goes well extremely well during tourist season.

 However, the loan she took out was paid back with 40% of all her profits.  She breathes a sigh of relief ‘at least the loan is paid off,’ she tells herself. But her margins are razor thin, and she has absolutely nothing in savings.

 Should be okay right?  Well, then the city council demands that the siding on her restaurant isn't the right color and she'll have to change it. With absolutely nothing in savings, Sally has to take out another MCA loan to resolve the issue.

When it comes to hard money business loans, real hard money providers don’t use your income to secure their loans.

 Across the street, Ralph was under similar threat from the city council.  He too needs fast money, he goes online and finds a hard money provider. His lender asks him to pledge his restaurant as collateral for the loan, and he's a bit nervous about the interest payments.  Nevertheless, he goes ahead and makes the necessary changes.  All the extra income he earns throughout tourist season, allows him to pay back the loan he took out and also enables him to save up the additional revenue.

 So when the Birkenstock wearing, tofu munching city council demands that he also needs to change the color of the siding on his building he has some extra money on hand and he doesn't need to take out another loan.

Risk less by seeking out real hard money business lenders.

The moral of this story is don't put your businesses long-term income on the line to fix a short-term problem.  A real hard money deal allows you to leverage the equity you have your business' real property as collateral. Yes, there's some risk  and you'll want to carefully consider whether or not you can pay back the loan. However, if the prospect of quickly paying back the loan is in sight than this type of deal offers little to no danger.

 However some there are hard money providers online, that are merchant cash advance lenders.  These loans are especially dangerous as seen in the story above because they hamper your business's ability to save income. Your business's cash flow is eroded,  and slowly but surely another short-term problem comes up. Because of your MCA, you have little to no savings on hand, and you have to take out another loan.

So when it comes to alternative financing,  know precisely what you're pledging. Be sure your hard money provider is the real deal.