What Is Hard Money Lending and Is It Right for Your Deal?
Hard money loans get their name from the collateral that secures them, hard assets (real property) rather than the borrower's creditworthiness or income. They're a specialized financing tool used primarily by real estate investors who need speed, flexibility, or access to deals that conventional financing won't touch.
What Makes Hard Money Different
In conventional lending, you're underwritten primarily on your ability to repay, income, credit score, debt ratios. In hard money lending, the property is the primary underwriting criterion. If there's sufficient equity in the property relative to the loan amount, many hard money lenders will fund the deal even if your personal financials wouldn't qualify you for a bank loan.
This makes hard money uniquely accessible, and uniquely expensive.
Who Hard Money Lenders Are
Hard money lenders are typically private individuals, small investment funds, or specialty lending companies, not banks. They're lending their own capital or pooled investor capital, which gives them flexibility to make decisions quickly without institutional committees or regulatory constraints.
Typical Terms
- Rates: 10 to 14%+ per year, interest only
- Points: 1 to 3 origination points paid upfront
- Term: 6 to 24 months
- LTV: 60 to 70% of as-is value
- Close time: 5 to 14 days
- Documentation: Minimal, property valuation and basic borrower info
Common Use Cases
- Fix and flip, acquire distressed residential or commercial property, renovate, sell
- Bridge financing, hold a property while arranging permanent financing
- Distressed or non-warrantable properties conventional lenders won't touch
- Time-sensitive purchases where conventional timelines don't work
- Borrowers with credit challenges who have significant equity
The Cost Reality
Hard money is expensive relative to conventional financing. On a $500,000 loan at 12% with 2 points, you're paying $6,000 at closing and $5,000 per month in interest. Over a 12-month hold, the total interest cost is $60,000 plus points. The deal needs to generate enough profit to absorb that cost and still make sense.
Run your exit scenario carefully: what does the property need to sell for (or refinance to) to cover your all-in cost including hard money interest?
Hard Money vs Bridge Loans
The terms are often used interchangeably, but there are distinctions. Bridge loans tend to be more institutional, with lower rates and more underwriting requirements. Hard money is typically more private, faster, and more flexible, but more expensive. The right choice depends on your deal, your timeline, and your credit profile.
Educational content only, not advice. KQT Advisors, LLC is a commercial loan broker; we are not a lender, attorney, accountant, financial advisor, or fiduciary. We do not originate loans or make lending decisions. The information in this article is provided strictly for general informational and educational purposes and reflects our understanding at the time of writing. It is not, and must not be construed as, financial, tax, legal, accounting, investment, or any other professional advice, and creates no advisor-client relationship. Loan programs, rates, terms, eligibility requirements, fees, and approval criteria are set by individual lenders, the SBA, and other parties and are subject to change at any time without notice. Examples are illustrative only and not guarantees of outcome. Nothing here is a commitment to lend, an offer of credit, or a representation that any specific structure will be available to or appropriate for any borrower. Always consult your own qualified financial, tax, and legal advisors before acting on any information in this article. To the maximum extent permitted by law, KQT Advisors, LLC and its principals, employees, agents, and affiliates disclaim all liability for any direct, indirect, consequential, or incidental loss or damage arising out of any use of, reliance on, or inability to use the information in this article.