When you’re trying to secure commercial property, you don’t always have time to wait.
But permanent financing from banks and institutional lenders is notoriously slow to approve and fund. Should you use hard money to secure the property?
In this guide, we’re breaking down the most common questions investors ask about hard money loans in commercial real estate to give you a clearer idea of how they work and what they cost, so you can decide if this approach fits your project.
What is a commercial hard money loan?
A hard money loan is a short-term loan backed by the commercial real estate asset you’re purchasing or refinancing.
If you’re buying or refinancing commercial property and need funding fast, this type of financing can help you close quickly without getting stuck in a drawn-out bank process.
Instead of focusing on your credit history, hard money lenders look at the value of the property you plan to use as collateral — either its current market value or future after-repair value.
Many seasoned CRE investors use hard money to flip a building. They renovate it aggressively and then sell at a profit before the loan matures.
Hard money can also be extremely useful if you’re trying to secure a deal on a tight timeline or still working through permanent financing.
You’ll pay more in interest and fees, but you get speed and flexibility in return, especially on deals that a traditional lender might not approve.
What credit score is needed for a hard money loan?
Most hard money CRE lenders will ask for a minimum credit score between 550 and 600, but some are more flexible and are willing to go lower or even skip the credit check altogether.
Since the loan is backed by the value of the property, credit takes a backseat.
In fact, many hard money lenders don’t report to credit bureaus or factor FICO scores into their decision-making.
Have you had financial setbacks in the past but have a viable investment and solid plan? You may still qualify.
How much money do I need to get a hard money loan?
Lenders usually cover 60% to 85% of the deal, and you’ll need to come up with the rest.
So expect to contribute 15% to 40% of the property’s purchase price or after-repair value.
Most borrowers put down 20% to 30%, although experienced investors may find deals with lower down payments.
On top of that, you’ll pay closing costs, origination fees, and other charges, which can add another 1% to 5%.
Lenders may also want to see proof that you can cover rehab expenses and make monthly interest payments.
If you already own the property, they’ll look at how much equity you have so far built up.
In most cases, they want to see that you’ve retained at least 25% to 40% ownership based on the current market value.
That equity gives them a cushion in case you default on the loan.
What’s the interest rate on a hard money loan?
Here at Private Capital Investors, rates start as low as 7.59%.
Loan amounts range from $1 million to $50 million. We fund up to 85% of the property’s value.
Do hard money loans have monthly payments?
Yes. Most commercial hard money loans require interest-only payments every month.
Because the term is short (usually between 6 and 36 months), the full loan principal is due at the end in one final payment.
Some lenders may offer deferred structures or balloon payments with no monthly outflow—you wouldn’t make any monthly payments, and instead you’d pay everything (interest and principal) in one lump sum when the loan matures.
But those setups are rare. If you’re considering one of these loans, make sure you understand how and when repayment will happen.
How risky is hard money lending?
Hard money is expensive and short-term.
If you don’t have a solid exit plan to either refinance or sell, you could find yourself in a tough spot when the loan matures.
Interest rates and fees are, not surprisingly, higher than conventional CRE loans because the lender is taking on so much more risk. These loans are not meant to be held for years.
Most are designed to bridge a gap while you reposition the property or wait for long-term financing.
If you don’t have a realistic timeline for repayment or a fallback strategy, the loan could become a liability rather than a solution.
Related: Hard money loan myths, busted.
Do you need collateral for a hard money loan?
Yes. Hard money lenders issue loans based on collateral, and that collateral is usually the commercial property you’re buying or refinancing.
The lender will secure the loan against its current or projected value.
In some cases, lenders may accept other assets — like a different real estate holding or high-value personal property — as collateral.
But the standard practice is to tie the loan to the subject property.
Since these loans carry higher risk, collateral protects the lender if you default.
Related: Hard money vs. DSCR loans
How long does it take to get approved for a hard money loan?
Here at Private Capital Investors, we are able to release funds within two weeks in most cases.
That’s very short compared to traditional financing, which can take 30 to 90 days.
Be sure to provide us with clear documentation upfront to make the process even faster.
What are red flags for hard money lenders?
Hard money lenders decide fast but they don’t do so blindly. They watch for specific warning signs during the screening process.
- If your application includes conflicting details like a wrong Social Security number or an invalid address, they might doubt the accuracy or honesty of your documents.
- Do you have a weak credit or financial history? Even though hard money lenders don’t base their decision solely on credit, they still look at both personal and business credit to gauge how disciplined you are in handling finances. The lender will probably review your personal history if your business is new.
- Is your plan clear and logical? If you’re buying commercial property but can’t explain how you’ll use it or how you intend to pay the loan back, that’s a problem. Lenders want to see that you’ve thought through the numbers.
Related: Some lenders are now using AI to screen hard money loan applications.
Do hard money lenders pull credit?
Some do, some don’t. When they do pull credit, it’s usually a hard inquiry — a full credit check that shows up on your report — but it’s not the deciding factor.
Hard money lenders prioritize the asset’s value — specifically the purchase price or after-repair value.
Still, they may look at your credit score and experience to confirm that you can manage the property and meet repayment terms.
Private Capital Investors provides hard money loans nationwide, up to $50 million, with rates starting at 7.59% and closings in as little as 14 days. Call 972-865-6206 or use this form to request a quote.
Sources
https://www.northcoastfinancialinc.com/the-beginners-guide-to-hard-money-loans
https://thehardmoneyco.com/blog/hard-money-loan-credit-score/
https://clarifycapital.com/blog/hard-money-loans-explained
https://www.fctd.com/blog/do-hard-money-lenders-check-credit#
