After weeding through the crowded space of hard money lenders (there are over 600 in the US), we’ve selected South End Capital as the best hard money lender for small businesses. Hard money loans can be a good option if you’ve had trouble qualifying for a bank loan or need money quickly. We recommend South End Capital because they offer relatively low rates, long terms, and small loan sizes, all of which are unusual for a hard money lender.
In this article, we provide a complete review of South End Capital, along with two other leading hard money lenders: RCN Capital and Apex Mortgage.
Best Hard Money Lender for Small Businesses: South End Capital
South End Capital is our top pick because they have low rates starting at 8 % and lend as little as $2K and as much as $5 million. Their terms range from 1 to 25 years, making them a good option for a range of small businesses.
Best Hard Money Lenders Comparison Table
|Minimum 580 FICO Score|
No current bankruptcy or foreclosure
|Minimum 650 FICO Score||Minimum 400 FICO Score|
No current bankruptcy
|Approximate Interest Rates|
|8-13 %||9-12 %||12-15 %|
|$495-$1,995 appraisal, underwriting, and processing fee |
Third party fees like title, environmental studies, etc.
|$500 underwriting fee|
Appraisal fee and third party fees
|Did Not Provide|
|Yes, varies depending on length of loan term||Yes, 1 % for first 6 months||No|
|How Much Can You Borrow?|
|$2K - $5M|
Up to 80 % LTV
|$100K - $2.5M|
Up to 70 % LTV
Up to 60 % LTV
|For How Long?|
|1-25 Years||6-24 Months||Up to 5 Years|
|Time to Get Funding|
|2-4 Weeks||2-4 Weeks||2-4 Weeks|
|Phone and Email||Phone and Email||Phone and Email|
|How Much Have They Lent to Small Businesses?||$106 Million since 2009||$130 Million since 2010||Did Not Provide|
South End Capital: Best Hard Money Lender Overall for Small Businesses
It can be hard to separate the bad from the good in hard money lending, and in the course of our research for this article, many hard money lenders didn’t even want to talk with us. However, South End Capital was very transparent about pricing and terms. We chose them as the best hard money lender for small businesses because they have relatively low rates, long terms, and small loan sizes.
Small businesses can borrow as little as $2,000 or as much as $5 million with South End Capital, depending on their creditworthiness, business cash flow, and the value of the real estate collateral. Access to smaller loans are a big advantage of applying with South End because many banks and hard money lenders won’t consider smaller loans.
Hard money loans get a bad rap for being extremely short-term, high-interest rate loans, but South End Capital breaks from the mold. Their interest rates range from about 8 to 13 %. The company also provides “hard-money borrowers longer terms to work out their situations or hold loans for extended periods of time,” says Noah Grayson, Managing Director at South End Capital. Their loan terms for commercial real estate-backed loans range from as short as 1 year for someone who wants to do a fix and flip for example to as long as 25 years for someone who wants to buy a commercial building.
The primary downside to South End Capital is that it can be difficult to qualify. The company receives about 200-300 applications per month, but only about 200 per year receive funding. That means a lot of businesses are turned away, either because they don’t have the cash flow to afford the loan or are currently in the middle of a foreclosure or bankruptcy. That being said, Grayson says many of the firm’s customers were victims of the Great Recession, and they regularly work with customers who have had recent bankruptcies or foreclosures.
In addition to hard money loans, South End Capital provides SBA loans and working capital loans for small business owners. In this buyer’s guide, we only cover the hard money loan product. For tips on getting working capital, click here. For more information on SBA loans, click here.
RCN Capital: Best for Business Owners With Better Credit
RCN Capital is another leading hard money lender, and they are our top choice for small business owners with credit scores above 650. This is the minimum credit score needed to qualify for a commercial loan with RCN (there’s no credit score minimum if you want to do a fix and flip).
Whereas South End Capital provides a wide range of interest rates and terms, RCN’s primary product is a 6-24 month loan with rates ranging from 9-12 %. These loans are designed for small businesses with decent credit that need short-term bridge financing before refinancing to a conventional bank loan or SBA loan.
A lot of small businesses that RCN works with may be eligible for bank financing, but they opt for a hard money loan because they have a short window of opportunity. For example, says Jeffrey Tesch, Managing Director for RCN Capital, “a small business owner may have the chance to buy an adjacent building and expand her business. If she waited for a bank loan to close, she would lose the chance.”
RCN works to get such business owners quick funding, but ultimately they want to make sure you can go on to get a bank loan so you can hold onto the property for rental income or business purposes. In order for that to happen, you need decent credit.
RCN works with most industries, with the exception gas stations, dry cleaners, and manufacturing businesses.
Other Options: Apex Mortgage
Another leading hard money lender is Apex Mortgage, which has for over 20 years been providing loans to small businesses that are unable to obtain traditional financing. They have several loan programs, one of which is hard money loans. Unfortunately, the company did not return our phone calls and email requests to interview them for this article, so we don’t have detailed information about their hard money loans.
From reviewing their website, it looks their loans range from $25,000 to $350,000. Apex Mortgage may be a good option for business owners with poor credit. They will consider working with business owners who have a FICO score as low as 400.
However, Apex’s rates are higher than South End Capital’s and RCN Capital’s. Also, they only lend up to 60 % LTV on their hard money loans, so you might end up with a shortfall of capital.
In-Depth Review: South End Capital vs. RCN Capital vs. Apex Mortgage
Hard money loans, sometimes also called non-conforming loans or bridge loans, are loans that are funded by private investors or private companies and are backed by a hard asset, typically real estate. They are most often used in three cases:
- Residential fix and flips
- Starting or expanding your current business by buying a commercial property (owner-occupied)
- Purchasing a commercial property, such as a retail plaza, as an investment property (non-owner occupied)
Bank loans can also be used to fund these type of projects. However, you have to excellent credit (typically 680+ FICO) in order to use bank financing, not to mention a lot of patience. It normally takes 3-4 months for a bank loan to close. Hard money lenders are used to working with borrowers who don’t fit traditional underwriting criteria, and they can get you funding in 2-4 weeks.
If you don’t have real estate to put down as collateral, then you cannot use a hard money loan. However, there are other options which you can read about it in our Bad Credit Business Loans guide and Fast Business Loans guide. Now, let’s take a look at how each hard money lender stacks up pricing, qualification requirements, and more.
It’s generally easier to qualify for a hard money loan than a traditional bank loan. Hard money lenders are used to working with borrowers who have lower credit scores or who may have been set back with a bankruptcy or a foreclosure. They even work with startups, as long as there is some real estate that can be used as collateral.
The main thing hard money lenders care about is the the business’ ability to generate cash flow and pay back the loan. To evaluate this, lenders will most likely look at your Debt Service Coverage Ratio (DSCR). DSCR is calculated by dividing your business’ annual net income by the business’ annual loan payments. Your DSCR should ideally be greater than 1 to qualify at a hard money lender.
RCN Capital – You generally need to have a personal credit score of 650 to qualify for a commercial real estate loan with RCN Capital. There’s no minimum for fix and flip loans. Like South End, they look for a DSCR of around 1.2.
Cost – Interest Rates, Fees, and Prepayment Penalties
If speed and flexibility are the upsides to hard money lending, cost is the downside. Interest rates are higher than a bank loan. There are also fees, the most common being:
- Appraisal fees – You will have to pay for a third party appraiser to value the real estate that you’re using as collateral. The amount of the fee varies based on the size and type of the property.
- Underwriting fees – At closing, you may have to pay an underwriting or closing fee.
- Prepayment penalties – Many hard money lenders charge prepayment penalties if you pay off the loan early.
Make sure you ask the lender you’re working with about fees well in advance so there are no surprises later on.
How Much Can You Borrow?
There are three main things that determine how much money you can borrow from a hard money lender:
- Loan-to-Value (LTV)
- Business Cash Flow
Loan-to-Value, or LTV, is the amount of money the lender will lend to you relative to the value of the real estate you are providing as collateral. For most lenders, that’s around 70-80 %. So, for example, if your real estate is worth 100,000, the maximum amount of money you could get (no matter how good your business revenues or credit score) is $70,000-80,000. The rest of the money would need to come from personal resources or other sources of financing.
Most borrowers don’t get the maximum LTV because the loan size is further constrained by business cash flow and creditworthiness. The higher your credit score, the more money you’ll be able to borrow. As mentioned above, DSCR measures your business’ ability to service debt and is calculated by dividing your business’ annual net income by the business’ annual loan payments. Your DSCR should ideally be greater than 1 to qualify for a hard money loan.
South End Capital – You can borrow between $2,000 and $5 million at South End Capital. The maximum LTV is 80 %. In general, your DSCR should be 1.2 or higher. Lower credit businesses and startups may be limited to received 8-10 % of their annual business revenues. For instance, if your business grossed $100,000 in revenues last year, you might qualify for $8K-10K in funding.
RCN Capital – You can borrow between $100K and $2.5 million at RCN Capital. As with South End Capital, your DSCR should be approximately 1.2 or higher. The maximum LTV at RCN Capital is 70 %, but if you can’t come up with the additional 30 % on your own, RCN can do something called “cross-collaterization.” That means if you own multiple properties, you can use those as additional collateral to get more financing.
Hard Money Loan Terms – For How Long Can You Borrow?
Though hard money loans are generally thought of as short-term loans, that’s not always the case. It really depends on what you’re using the loan for. If you’re doing a fix and flip, for example, your loan is likely to be very short term because the goal of the project is to renovate and sell the house for a profit as quickly as possible. However, if you want to expand your business by purchasing a building, you may prefer a longer term hard money loan.
Hard money loans may be structured in one of two ways:
- Balloon loans – Balloon loans have low interest-only monthly payments throughout the term, followed by a large balloon payment of the remaining balance at the end.
- Fully amortizing loan – This is a traditional loan, where you make monthly payments of interest and principal throughout the term.
South End Capital – South End Capital’s hard money loans range anywhere from 1-25 years. They offer fully amortizing loans and balloon loans.
Application Process and Timeline
A major advantage of hard money loans over traditional bank loans is speed. Whereas real-estate backed bank loans generally take 2-4 months to close, hard money loans typically close in 2-4 weeks. Most of that time is taken up by the third party property appraisal.
South End Capital – Loans typically take 2 to 4 weeks to close at South End Capital. They require the following documents to be submitted along with your application:
- 3-6 months bank statements
- Recent personal and business tax returns
- Recent Profit & Loss Statement and Balance Sheet
- Property appraisal authorization
- Credit authorization
- 3 months bank statements
- 4506-T form for tax transcripts
- Property appraisal authorization
- Credit and background check authorization
To be honest, hard money lenders are generally not known for their excellent customer service. However, South End Capital and RCN Capital stood out for having great customer service.
South End Capital – During the application process, you will get a dedicated account representative to answer any questions. The California-based company’s office hours are 8 AM to 6 PM Pacific Time, and if you want phone support, you should call during that time. However, Grayson says that loan officers typically respond to emails even after hours.
Hard money loans can be a good option for your small business when you need to act quickly or when you’re unable to qualify for conventional bank financing. South End Capital is our top pick overall because they have low rates, long terms, and small loan sizes.