Hard money business loans come up often for owners with low credit scores, because they are underwritten on collateral rather than credit history. But they are not the right fit for every business. This guide explains how hard money loans work, the 500-credit-score reality, and the alternative for businesses that do not have real estate to pledge.
What a hard money business loan is
A hard money loan is a short-term loan secured by a hard asset — usually real estate. The lender focuses on the value of the collateral rather than the borrower credit profile, which is why these loans are associated with lower credit scores. In exchange, they typically carry high interest rates, short terms, and the risk of losing the pledged asset if you cannot repay.
Can you get one with a 500 credit score?
Possibly — because hard money lenders weigh collateral over credit, a low score is less of a barrier than it would be at a bank. The catch is that you must have a valuable asset, usually real estate, to pledge, and you accept the high cost and the risk to that asset. Many small businesses simply do not have property to put up.
The alternative if you have no real estate
If your credit is low but your business has steady revenue and no real estate to pledge, revenue-based funding (a merchant cash advance) is an alternative worth understanding. It advances a lump sum against your future sales and is approved on the deposits flowing through your business rather than on credit score or collateral. There is no property to pledge, and eligible applications can be funded quickly. Not all applicants qualify.
The bottom line: hard money works when you have real estate to secure and accept the cost and risk; revenue-based funding fits a revenue-positive business with weak credit and no asset to pledge. Y Millennial Funding is a direct funder of revenue-based funding for businesses doing $25,000 or more in monthly revenue — it is not a hard money lender, and a merchant cash advance is a small business loan alternative, not a loan.