Hard money loan is a type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private investors or companies and carry higher interest rates than conventional commercial property loans because of the higher risk and shorter duration of the loan. A hard money loan is essentially the same as a bridge loan, with the differentiating factor being that hard money loans are generally provided by private lenders, whereas a bridge loan is provided by a bank or other traditional lender. Hard money loans are frequently used to acquire distressed properties and “fix-and-flip” properties. The formula for establishing the lending dollar amount with a hard money loan is often the LTV based on the “after repair value”, which differs from traditional lenders who typically rely on the “as-is” value. For example, a hard money lender may view a $200,000 property in need of $50,000 of improvements as worth $300,000 when the work is complete and may lend 70% LTV against the $300,000 after repair value or $210,000. By way of comparison, a traditional lender may also make a 70% LTV loan, but against the $200,000 “as-is” value or $140,000.
