Qualifying for Hard Money Commercial Loans with Bad Credit

Hard money commercial loans are commercial loans that are made to a business with bad credit. A business with bad credit will certainly find it more difficult to qualify for a commercial loan, or a “hard money” commercial loan than a business with a more favorable credit rating. To qualify for a commercial loan with bad credit, the first thing this type of business needs to do is find a lender willing to provide a loan. 

Finding a Lender

Bad credit loans for business are advertised all over the internet but only a few of them legitimate offers. These loans typically have higher rates and fees. Bad credit hard money commercial loans may charge interest rates that are 10 to 20 points higher than a comparable loan, on a good credit hard money commercial loan. 

Caution Regarding Low Doc Loans

A business with bad credit should also be cautious applying for a hard money commercial loan provided by a lender that promises a low documentation or “low doc” loan.  The premise behind low doc loans is to waive the requirements for income verification and other documents necessary to verify the business’s credit worthiness and ability to pay back the loan.  These loans may result in additional burden on part of the business in terms of the cost and other conditions that are written into the loan agreement should the business miss a payment or otherwise default on the loan.

Securitizing a Loan

Lenders that are willing to provide hard money commercial loans to businesses with bad credit will require collateral or some asset to secure the loan amount. This includes securities, cash, equipment or other tangible assets of the business in the amount of the loan. This security provides the lender with the necessary backing in case the loan does default and a way for the lender to recoup some of its losses.  

Obtaining a Guarantor or Co-Signer

A business that is unable to provide security may also consider obtaining a co-signer or other guarantor  for the loan as a way to qualify for a hard money commercial loan. The lender relies on the credit worthiness of the guarantor or co-signer to make their decision on granting the loan and the amount of interest that they will charge for the debt.