Hard Money

Hard money really isn't hard to get at all. Rather, it can be pretty easy to get--but at a cost. Hard money is private money loaned by an individual or a locally based company to someone who can't qualify for traditional bank loans, so terms of the loans are stricter than usual.

Many businesses use private investors, and for a variety of reasons. They may be facing foreclosure. They may be investing in non-traditional properties or rural investments where the land is valued much more than the house. Essentially, people turn to private lenders when they need a quick, temporary loan and other options are not available.

Hard Money May Be Hard to Pay Back

Since hard money comes from individuals instead of large banking concerns, they often dictate a strict payback schedule, with high interest rates and up-front fees. And since the borrowers have poor credit and can't secure other funding, they have to take it. The borrowers tend to have some equity in their homes or property, so the lenders can take possession if the loan isn't paid back in a timely manner.

Borrowers generally seek private money for smaller-scale projects, such as repairing a home or refinancing a mortgage. But there are also investors who will offer new construction loans, or even larger projects--such as bridge funding, for example--if all their conditions are met. In any case, it is imperative that you closely read all the agreements before you accept one of these high-interest rate loans.