Hard Money Business Loan – The Facts About a Hard Money Business Loan

November 22, 2009 · Posted in Alternative Financing 

The cost of starting up an enterprise is high; most advisers recommend that you have at least $50,000 capital on hand “just in case” when you begin your own venture. This is meant to be for unknown problems and glitches, not the actual equipment and running costs. You really need that buffer to create a comfort zone to allow your venture to operate until it takes off on its own. But cheer up. If starting an enterprise is costly, you can usually get all the advice you will ever need or want for free.

But when this nest egg begins to decrease and your venture just hasn’t taken off, how do you remain current on all of the financial obligations? Do you consider obtaining additional financing or is debt relief counseling a better solution?

First of all, it is time to review what types of loans are being offered and which type you may already have. Every bank, savings and loan and credit union has a somewhat bewildering package of small business loans. Most of the loans offered are straightforward, unsecured loans that are based upon the overall credit picture of all of the partners, the overall plan, and the determination of the lender that you prospectus is sound. This sounds as though you will be facing quite a bit of scrutiny. Is there an alternative if you dont get the money you need in this way? There are always alternatives, but it is important to determine if they are valid for your purpose.

One alternative that may be offered is a hard money business loan. In opposition to an unsecured small business loan, a hard money business loan is secured against collateral that you put up. It is usually in the form of real property, such as an apartment building or office space that you already own. Some people offer their homes as collateral, a very bad idea since it mixes business and personal finances and it opens the door to real problems on all levels if the enterprise does not do well and prosper as planned. In some cases, a hard money business loan will be issued against an expensive vehicle or equipment, but the value of the property put up as collateral will have to be in excess of the value of the small business loan that you are seeking.

A hard money business loan is always a risky venture, and it is nearly always preferable to obtain the debt relief that can be negotiated by a qualified consultant. Seeking a hard money business loan to try to settle existing financial problems just digs a deeper hole for your enterprise. It is better to get the advice of a skilled financial counselor who will advise you regarding the real options available to reorganize your financial obligations.

Another thing to remember if you are tempted to take out a hard money business loan is that this type of business debt will not be eligible for debt consolidation, debt settlement or even Chapter 11 bankruptcy relief. The programs that are offered by debt relief consultants and lawyers can only address unsecured business debt. The only recourse available to an enterprise that is in financial trouble with repayment of a hard money business loan is loss of the collateral to the lender, which may satisfy the debt but does not erase the damage that have already been done to the credit rating.

Author: James A Banks
Article Source: EzineArticles.com
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