A hard money loan can be the perfect vehicle for funding a short-term financial need. By the same token, it can also be the wrong way to finance a project. The tricky part is knowing when hard money works and when it does not. Sometimes that is easier said than done.

Actium Partners, a Salt Lake City hard money firm that operates in Utah, Colorado, and Idaho, explains that most hard money loans go toward funding real estate transactions. However, that’s not set in stone. Lenders and borrowers can work together on any type of projects that suit them both.

So what are the most ideal situations for hard money? Consider the following:

1. Time Sensitive Real Estate Deals

Hard money is perfectly suited to time sensitive real estate deals. Actium once worked with an investor closing on a property with a traditional bank loan in place. Just one business day before closing, the bank backed out. Actium was able to save the deal with a hard money loan.

Time sensitive deals are not unusual in the real estate game. Real estate investments can move very quickly, requiring buyers to line up financing in days rather than months. Hard money is perfect for that sort of thing.

2. High Value Real Estate Deals

Not only are most commercial real estate transactions time sensitive, but they can also be high value transactions compared to their residential counterparts. An investor can easily spend tens of millions on a property without even blinking. Unfortunately, banks are not always willing to lay out that kind of cash for an investment acquisition. Hard money lenders are a different story.

Hard money loans are short term loans that typically do not exceed 24 months. That being the case, lenders are more willing to look at high value deals. As long as an investor has sufficient funds to put down, high value loans aren’t extremely difficult to come by.

3. Bridge Loan Scenarios

Hard money is often used to facilitate bridge loans. A bridge loan is a temporary funding tool that bridges the gap between an immediate financing need and a future source of income. Here is an example: an investor looking to purchase a new property even though a current property is listed for sale.

The proceeds of the sale would have gone to purchase the new property if it were not for the fact that closing on the new property was scheduled for a few days down the road. So to fund the acquisition while waiting for the existing property to sell, the investor turns to a hard money lender for a bridge loan.

4. Reorganizing Current Debt

Some hard money lenders write loans for businesses looking to reorganize their debts. A good example is a company with a debt instrument expected to mature in the near future. A hard money loan allows the company to cover that debt even while it works to arrange a new source of traditional financing.

5. Business Expansion

Although the majority of hard money loans fund real estate transactions, there are times when lenders will finance a company’s business expansion via hard money. Loans can be used to open new locations, invest in new equipment, etc.

The beauty of hard money is that it is provided by private lenders who have a lot more flexibility regarding the projects they invest in. So while hard money may not be the right financing solution for every need, it does work extremely well in certain scenarios. Hard money works so well that some borrowers make it their first choice rather than the last.