What Is a Soft Money Loan?

Soft loans often carry a number of conditions.

As an alternative to more traditional loans, municipalities, governments and some private enterprises may engage in soft loans to reduce costs. Because soft loans carry no, or very little, interest, both public and private entities can benefit from their use.

Definition

According to a document published by the Library of Congress, soft loans consist of funds that lenders issue with either no interest or an interest rate below the loan's actual cost.

Uses

Soft loans often fund developing nations. Some commercial ventures may also qualify for soft loans, and lenders issue soft loans as low as $300,000. Commercial developers, municipalities, financial institutions and even state entities may use soft loans to begin or complete projects, fund purchases or continue operations.

Conditions

Lenders may place several restrictions on soft loans. According to Triumph Capital Group, a lender's soft loan conditions include a minimum of $300,000, defined and realistic exit and repayment strategies, collateral or cash equity and a maximum 70 percent loan to value ratio.

References

• Library of Congress: Glossary and Definitions
• Triumph Capital: Soft Money Loan