Hard Money Loans vs. Conventional Lending: When to Use a Commercial Hard Money Loan

Experienced investors are aware that commercial hard money loans are a powerful tool for this business. In exchange for the high-interest rates and principal fee, your commercial hard money loans lender will finance you under very favorable terms.

last updated Sunday, July 13, 2025
#Commercial Hard Money Loan #Bank Loan

by John Burson

When to Use a Commercial Hard Money Loan

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Although sometimes traditional lending can be an excellent option, you’ll need a commercial hard money loan for a real estate business deal that requires something extra. The following are the cases when you may consider getting a commercial hard money loan:

If your Investment has a High Potential Yield

If you want to purchase a property with a 6% annual return, obtaining financing from a credit union or bank is a safe, conservative, and stable option. This is because commercial hard money loan lenders provide funds and flexibility that may enable you to acquire riskier properties with the potential to generate higher returns. For instance, if you purchase rehab properties where you anticipate making over 50% returns on resale, paying a higher interest rate for commercial hard money loans is reasonable, considering that you stand to earn a greater return from the deal.

For an Investment that Needs to Close Fast

Traditional financiers sometimes take months to approve a loan request. On the other hand, commercial hard money loan lenders can help you close in a matter of weeks. Although regular hard money loan lenders can complete in three weeks, others can provide the funds in three days if you are qualified and have a particular need. Such lenders can help you explore some of the best deals.

If you find it challenging to qualify for a Bank Loan

Commercial hard money loans are outstanding for individuals with poor credit scores who may be disqualified from obtaining bank loans. Commercial hard money loan lenders will only consider your ability to repay, regardless of your credit score and total debt level, especially if you have a sufficient down payment and the deal appears promising.

Your Investment requires rehabilitation.

Conventional lenders will consider the appraised value of the asset you want to invest in. However, commercial hard money loan lenders can value the property after you have completed the rehabilitation. The increased value will enable you to obtain more financing to help pay for the property and its improvements, and ensure that you receive high returns while using your equity to conduct more business deals.