Fulford Lending, as a hard money lender, only funds loans that are for a business purpose in the D.C., Maryland, Virginia area. In most states and jurisdictions, there is a legal distinction between loans for a business purpose and loans for a consumer purpose. A consumer purpose loan is governed and regulated by numerous statutes and regulations. These statutes and regulations grant certain rights and protections to the consumer borrower (i.e. interest rate limitations and a potential right of rescission). These statues and regulations also place certain restrictions and limitations on consumer lenders (i.e. licensing requirements and ability to repay determinations). A business purpose loan is not governed by these same statutes and regulations. This allows hard money lenders greater flexibility in making business purpose loans that other more regulated lenders cannot make.
Typically a business purpose loan is:
- a loan made to a business like a corporation or limited liability company and/or
- a loan made to a natural person primarily for a business, commercial, investment, or agricultural purpose.
Here are some examples of what a business purpose hard money loan can look like:
A cash-out refinancing allows you to take out cash from your property’s equity. (See our post on Cash-Out Refinances.)
For example, You have a rental property that is currently owned by you free and clear. You can take out part of the equity in this rental property and use the proceeds to provide additional working capital for your consulting business.
The purpose of a bridge loan is to provide short term business funding as you attempt to secure long-term funding. Our hard money loan acts as a bridge until you can find a more conventional long term loan from a bank or other financial institution. (See our post on Bridge Loans.)
For example, you come across a perfect office condo space for sale that will allow you to move out of your rented space and grow your business. However, the property is priced to move and you do not have time to obtain a business real estate purchase loan. Bridge financing allows you to purchase the space and provide you time to obtain more conventional funding.
BRRRR Loan or Rental Property Financing
BRRRR is a real estate term which stands for “buy, renovate, rent, refinance, and repeat.” A real estate investor would look to buy a well priced investment property with a hard money loan. From there the investor would renovate the property and start renting it out. Thereafter armed with an appraisal showing an increase in the property’s value and a steady rental income the investor would refinance the hard money loan with a more conventional loan. Then, the investor would look for another investment property to repeat the process. (For more information see or post on BRRRRs.)
Fix & Flip Loans
Fix & Flip loans are loans made to real estate investors to assist them in buying, rehabbing and selling investment properties at a profit. There are usually two parts of a Fix & Flip loan:
- the purchase part which is used to purchase the investment property
- the renovation part which is used to renovate the investment property.
Fix & Flip loans have their own terminology and instead of using LTV ratios most hard money lenders look at percentage of purchase price and after repair value (ARV) for Fix & Flip loans.
The purpose of a transaction loan is to secure funding to help pay for equipment or property that is used for your business.
For example, your web based store sells fishing equipment, and you notice that a competitor is liquidating a large amount of inventory. This inventory is being offered at a discount price for a cash purchase; however, you do not have enough funds on hand for the purchase. A hard money loan would allow you to purchase the inventory you would have otherwise lost out on.
-Nathaniel S. Fulford VI