About Hard Money Lenders for Starting a Business

by Lisa Magloff

Hard money is money that is supplied by private lenders, as opposed to banks. It is called hard money because it is usually secured by a real asset, such as property. Hard money loans are often easier to get than bank loans, but they come at a big cost, and a big risk, to the borrower. Many startup businesses turn to hard money loans when they cannot get a bank loan, but these loans can be very difficult to repay.


A hard money lender is essentially a person or company that has money to lend. Some hard money lenders are individuals with a large amount of cash on hand, who lend money to a small number of people as a business. Other hard money lenders are large companies that lend money to hundreds or thousands of individuals and small businesses. Many hard money lenders are actually merchant cash advance providers, which offer cash to businesses in exchange for a share of future earnings.

How it Works

Some hard money lenders loan money to startup businesses and secure the loan with the business-owners' property. This type of hard money lender will not loan money unless the borrower has an asset, such as a home, that can be repossessed in the event of nonpayment. However, most hard money lenders are merchant cash advance lenders, who will lend startup, or existing, businesses a lump sum in exchange for a share of future earnings. These lenders usually automatically deduct a percentage of the business' credit card transactions.


If the lender is a merchant cash advance company, which collects a share of future profits, then the loan is not regulated by laws that limit interest rates. In this case, the interest rates on the loans are usually very high – they can range from 30 percent to as high as 200 percent APR. This type of hard money lender will usually take between 30 percent and 45 percent of all credit card sales until the loan is paid off. This means that your income will be considerably reduced until the loan is paid off. If business is slow, it can take many years to pay off the loan and you will be left with little to live on in the meanwhile. Failure to repay the loan can result in a court judgment against you for breach of contract.


The only real advantage of a hard money loan is that hard money lenders will work with businesses that have little collateral or income – such as startups. The loans are usually easy to apply for and are given very quickly – usually within just a few days of applying. This is a fast and easy way to gain access to capital. Another advantage is that many merchant cash advance providers do not require you to provide them with a sales history before making the loan. This can be very helpful for businesses just starting out.


Because borrowing from a hard money lender is high risk for any startup business, you need to make sure that you thoroughly check out any company or individual that you are considering borrowing from. Try to talk with other borrowers to find out their experiences. You can also check with your state or local Better Business Bureau and find out if there have been any complaints against the lender.

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