Business Owners With Low Reported Income Turn to Private Money Loans to Score Commercial Real Estate Deals
April 24, 2024
Business owners often face a unique challenge when it comes to financing commercial real estate — they look unqualified on paper, even when their business is thriving. Some may even report losses due to writing off numerous expenses, but their business has positive cash flow. If you’ve ever been denied a loan because your tax returns don’t show enough income despite your healthy cash flow, there is clever solution.
Traditional lenders rely heavily on documented income, W-2s, 1099s, and standardized debt-to-income ratios. That model works for salaried employees, but not so much for the entrepreneurs who reinvest in their business, write off expenses, or operate under more flexible financial structures. The result? Many business owners find themselves locked out of traditional
commercial lending options.
That’s where commercial private money loans come in.
What Is a Private Money Loan?
A private money loan—sometimes called a hard money loan—is a short-term loan from a private individual or company. Unlike banks, private lenders focus less on your credit score or tax return and more on the value of the property and the viability of your deal.
These loans are commonly used for commercial property purchases, real estate investments, fix-and-flip projects, and bridge financing.
Why Traditional Loans Don’t Work for Many Entrepreneurs
Business owners often show minimal taxable income due to deductions, business expenses, or strategic accounting. That’s great for lowering tax liability—but problematic when applying for a
conventional loan.
Here are a few reasons why entrepreneurs struggle with traditional lenders:
- Low reported income on tax returns
- Unconventional income sources
- Short or variable work history
- High business reinvestment
- Limited verifiable W-2 wages
Even if your business is generating hundreds of thousands—or even millions—in revenue, underwriters may still decline your application based on what your paperwork says.
How Private Money Loans Solve the Problem
Private money lenders use asset-based lending models. That means they’re more interested in the property’s value and potential than your personal income history.
Here’s why private money loans are often the best option for entrepreneurs:
1. No Tax Returns RequiredYou don’t need to prove personal income with years of tax returns. If the asset is strong and your business plan makes sense, many private lenders will work with you.2. Fast Approval and FundingPrivate lenders can close loans in a matter of days or weeks—compared to 60–90 days with a traditional bank. This speed is crucial if you’re looking to secure a property in a competitive market.3. Flexible Deal StructuresPrivate lenders are more open to unique or complex transactions, including value-add commercial properties, mixed-use buildings, and development projects that traditional banks may avoid.4. Bridge to Permanent FinancingMany entrepreneurs use private money loans as bridge financing. Once the property is stabilized or the business finances become more “bankable,” they can refinance into a long-term loan at a lower rate.
A Common Scenario
Let’s say you run a successful online business or local service company. You’ve been reinvesting profits to grow, and your tax returns show minimal income. You find a commercial property that’s perfect for expansion—but the bank declines your loan application.
With a private money lender, you can still move forward. The lender evaluates the property, considers your business plan, and provides funding based on the asset’s value—not just your reported income.
You get the property, build equity, grow the business, and refinance once your financials are in a better position for traditional lending.
What’s the Catch?
Private money loans do come at a cost. Interest rates are higher than traditional loans. The terms of repayment are shorter, usually 12 to 36 months. You’ll also likely need access to capital for down payment, but they do allow creative solutions for that unlike with qualified mortgages and traditional bank loans.
However, for many business owners, the benefits outweigh the costs. The ability to move quickly and secure the right property now can lead to significant long-term returns.
If you’re a business owner or entrepreneur who’s been turned down by a traditional lender due to low reported income, don’t assume financing is out of reach. Private money loans offer a practical, fast, and flexible solution. These loans can help you unlock opportunities, acquire more locations for your business, renovate an existing office building, that would otherwise be inaccessible through conventional financing. By using a private hard money lender to secure your next
commercial property, you can skyrocket your business without letting paperwork hold you back.
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