Hard Money Loans: When Speed Matters Most

Hard money lenders prioritize asset value and exit strategy over borrower strength. These loans can close fast — sometimes in days — but they come with higher rates, shorter terms, and stricter consequences if things go sideways.

As a broker, your job is to know when speed matters more than price — and how to keep clients out of trouble. This guide, part of our longer series on all commercial loan types, focuses on what hard money loans can (and can't) do for your clients.

What Are Hard Money Loans?

Hard money loans are short-term, asset-based loans made by private lenders — often individuals, small funds, or non-bank financial institutions. They’re typically used when a deal is too fast, too complex, or too risky for conventional financing. These loans prioritize the value of the underlying asset and the borrower’s exit plan over credit history or income documentation.

Most hard money loans are interest-only, with terms ranging from 6 to 24 months, though some extend up to 36 months. Rates are typically much higher than conventional financing, and vary significantly depending on the lender, the asset, and the perceived risk of the deal. Expect origination fees (1 to 3 points), exit fees, and possibly extension fees if things go long.

Because underwriting is based largely on property value and viability of the business plan, the process is fast — sometimes just a few days. But with speed comes risk: Default remedies are aggressive, and lenders are often quick to foreclose if the deal goes off track.

When Hard Money Makes Sense

These loans can be a lifeline for borrowers when timing or deal profile locks them out of bank or agency financing. Brokers often reach for hard money in cases like:

• Distressed properties that need repositioning, renovation, or lease-up before they’ll qualify for permanent debt
• Time-sensitive closings, like auctions, foreclosure bailouts, or urgent off-market acquisitions
• Fix-and-flip scenarios, where the borrower intends to improve and sell quickly
• Bridge-to-perm loans, where a long-term refinance (like HUD, Fannie, or a LifeCo loan) is in progress but not ready to close yet

I'll illustrate with an example. A small multifamily investor finds a 12-unit value-add opportunity in a fast-moving market. The seller wants to close in 10 days. The property is underleased, needs ~$200K in renovations, and won’t qualify for agency or bank financing until stabilized. The borrower has a solid track record but can't move fast enough with conventional capital. A hard money lender agrees to fund the acquisition and rehab in 8 days, based on the asset's upside and a clear exit plan to refi into a HUD 223(f) loan in 18 months. The borrower pays a higher rate and a couple points upfront — but wins the deal and the upside.

Hard money is expensive — no sugarcoating that. But for borrowers who stand to lose the deal by waiting, the cost is often worth it.

Key Terms Brokers Should Watch

• Loan-to-value (LTV): Usually capped at 60% to 75% of "as-is" value
• Loan-to-cost (LTC): May be considered for construction or rehab loans
• Exit plan: Lenders want to know how and when they’ll get paid back — refinance, sale, etc.
• Personal guarantees: Not always required, but many lenders ask for them
• Prepayment penalties: Some lenders lock in minimum interest or flat fees

What Can Go Wrong

• Overestimating exit timelines — most hard money loans don’t allow extensions without extra fees or full re-underwriting
• Borrowers with no fallback — if the exit fails, there’s usually no workout option
• Bad contractors — on construction deals, poor execution can tank the whole strategy
• Lack of transparency — make sure your client knows the real costs, not just the rate

How to Place a Hard Money Deal

• Find a lender who specializes in the asset type (e.g. multifamily vs. retail)
• Vet their reputation — not all private lenders are created equal
• Help your borrower document a realistic exit strategy
• Package the deal with photos, a business plan, and a timeline
• Be honest — hard money lenders value clarity over polish

High Risk, High Utility

Hard money isn’t for everyone. But for certain deals — and certain timelines — it’s the only thing that works.

If your client needs speed, flexibility, or a shot at a turnaround play, hard money can be the bridge. Just be clear-eyed about the risks — and make sure your borrower is, too.