Small Business Loans vs. Hard Money Loans: What’s The Difference?

Ambitious young biracial woman get loan approval paper letter from bank dream of new opportunity. Happy black female small business owner receive good news by mail in financial report think of profit

At Blú Capital, we mainly deal in financial tools for small businesses to thrive, including hard money loans, small business loans, and invoice factoring. While invoice factoring is our primary service (check out our blog on the topic here), we also help companies succeed through hard money loans and small business loans. 

Often, we’re asked what the main differences are between hard money loans and a conventional small business loan. The end result is money that your business can use for your business, but what truly splits the two apart and which is best for your business? In this blog, we’ll tackle those questions and try to give you a deeper understanding of business loans and of Blú Capital! 

How Conventional Business Loans Work

Conventional business loans come in a variety of forms, but most involve some sort of loan or line of credit being lent to a business owner with their financial position as the main deciding factor for the loan. This won’t be the sole factor driving the lending decision, of course, but it is a large part of what distinguishes this from hard money loans. 

There are actually many different types of small business loans, each tailored to a specific need and even specific industries. Some of the different types of business loans include, but are not limited to, the following: 

  • Small Business Line Of Credit
  • Small Business Administration (SBA) loan
  • Short Term Loan
  • Business Term Loan
  • Business Credit Card
  • Equipment Financing 
  • Commercial Mortgage
  • Accounts receivable financing (invoice factoring)

This is by no means an exhaustive list, but it should give you an idea of just how much variance there is between types of small business loans. One of the main factors tying these types of loans together is that they rely heavily on the creditworthiness and current financial situation of the borrower. 

What Are Hard Money Loans? 

Hard money loans, in contrast to conventional small business loans, use property as collateral for the loan rather than the creditworthiness of the borrower. This makes the loan safer on the side of the lender, because failure to pay means they can acquire your collateral as their own. This makes hard money loans much faster to be approved than conventional loans. 

Hard money loans are most often associated with flipping houses, where a buyer buys a home, quickly repairs and/or renovates the home, and then puts it back on the market for a profit. Since the real estate market moves quickly, these kinds of loans are great for getting access to capital quickly and making big decisions. 

Which One Is Right For Me? 

Now, the obvious question arises: which type of loan is best for my business? Well, that depends on some of the factors involved. If your business is in real estate, then hard money loans may be great for you, as this is one of the most common ways that hard money loans are used. The downside of hard money loans is that they often come with large interest rates and may require sizeable down payments. 

For most businesses, a traditional business loan is likely the best bet. The reason for this is that if your credit is decent enough, it will result in lower interest rates and better overall terms than a hard money loan. You also likely won’t have to put up any collateral, which is useful. However, which service is for you highly depends on your past and current financial situation, as well as your goals with the loan. 

Choose Blú Capital To Support Your Business Today! 

Stumped on if hard money loans or a conventional small business loan is right for you? Our team can help. With years of experience working with small businesses in the U.S. and Mexico, we understand how finances can make or break a business. We can help you evaluate your situation and help you find out which service is best for you. 

To learn more about how we can help, give us a call or send us an email to schedule a meeting with our team today!

Turn unpaid invoices into working capital

Don’t wait on net terms! Get an advance on your outstanding invoices with Invoice Factoring.