Commercial Loans: Hard Money versus Soft Money

As you delve into the world of commercial loans and real estate investments, you will undoubtedly come across these two terms as they relate to the lending world. Here, then, is your foray into the land of tactile lending and what the difference is between these two types of loans.

The two terms, hard money and soft money, are used for both political contributions and in relation to lending practices. If you’re donating your hard-earned money, or easy-earned money if you’re into multiple streams of income, to a specific candidate, it’s defined as hard money. Divvying it out to a party or committee is what’s known in political circles as soft money.

Soft money loans are usually a combination of loan types—aspects of a traditional commercial loan combined with those of a hard money loan. As with a hard money loan, they are asset-backed and collateral is required. Unlike a hard money loan, your credit score is an important factor and, in most cases, needs to be above 580. Another requirement may be proof of available capital, and enough of said capital to pay three to six months of the loan payment. Soft money loans usually take longer to close than respective hard money loans.

Hard money commercial loans are often your best bet if you are in need of immediate cash or you’re working on building your credit back up and currently have a poor credit history. They can be closed in as little as two days and do not require the documentation that a lender of a soft money loan requests. Many investors use these types of loans for bridge loans (when waiting for traditional lending funds or other capital), fix and flip loans, new construction loans, and when looking to purchase rental property. They are very popular among real estate developers.

The Unique Criteria of a Hard Money Loan

A hard money commercial loan is given with a specific project or property in mind, and the loan is secured by real property. A hard money loan usually has a shorter repayment plan—anywhere from 3 to 60 months depending on the project. Lenders also offer loans to businesses in need of cash for their operations or for expansion. In these cases, they may use property, equipment, and receivables as collateral. You may also use your personal assets such as your home. The loan offer is based on the loan to value ratio (LTV) which, in many cases, is anywhere from 50 to 90 percent. An example of this calculation: Your home is worth $150,000 and a lender has given you a LTV of 80 percent. In this instance, you can borrow up to $120,000.

Many who started their first real estate project or house flipping business could not have done so without the aid of a hard money lender.

A hard money loan simply means that the loan is backed by collateral or a “hard” asset. Businesses and investors often find themselves ill-suited for a traditional loan for various reasons from the look of past years tax returns to needing money sooner than the months required obtaining a traditional loan. At Level 4 Funding, we can provide you with many options. Call us to discuss the numerous programs we have available that we can curtail to your specific needs.

Dennis Dahlberg

Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177 NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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