As a commercial brokerage company, we understand that sometimes businesses require financing to fuel growth, and a hard money loan can be an attractive option. These loans are often approved quickly and require minimal documentation, making them an excellent funding source for businesses that can’t obtain traditional loans. However, it is crucial to understand the potential consequences of defaulting on a hard money loan.
A hard money loan is a type of loan that is secured by collateral, such as real estate or equipment. When you default on a hard money loan, the collateral held as security is seized by the lender to recoup the loan amount. The collateral may be sold or auctioned, and any money received will go towards repaying the loan. Unfortunately, the borrower may remain responsible for the outstanding balance if the collateral does not cover the total loan amount.
Another consequence of defaulting on a hard money loan is the damage to your credit score. Late payments and defaults stay on your credit report for years, making it difficult to obtain financing in the future. Additionally, defaulting on a hard money loan can lead to legal action against the borrower, including lawsuits and judgments. Collections agencies may also become involved, making it challenging to settle the debt.
If your business is struggling to make payments on a hard money loan, it is essential to communicate with the lender. Some lenders may offer alternative payment arrangements to help the borrower avoid default. However, ignoring the problem will only worsen the situation and increase the chances of legal action and credit damage.