Private Lender vs Hard Money

Understanding the differences between “Hard Money Lending” versus “Private Lending” can be subtle, yet important. Overall, Private Lenders oftentimes have flexibility that Hard Money Lenders may not have and are more boutique lending experience for the borrowers. We have compiled a quick article illuminating differences, so that you may choose which option may best suit your needs.

THE POTENTIAL DIFFERENCES & SIMILARTIES BETWEEN HARD MONEY LENDING & PRIVATE LENDING

The terms "private lending" and "hard money loans" are often used interchangeably, and there's significant overlap between the two. However, there can be some subtle differences:

POTENTIAL SIMILARITIES:

·        Source: Both private lending and hard money loans come from private lenders, not traditional banks or mortgage companies.

·        Focus: They cater to short-term financing needs, typically for real estate investment projects like fix-and-flips or new construction.

·        Qualification: Qualifying for these loans is often more flexible than traditional mortgages, with a focus on the project's potential and the borrower's experience rather than just credit score.

·        Higher Interest Rates: Both types of loans typically come with higher interest rates compared to traditional mortgages due to the shorter terms and higher risk involved for the lender.

POTENTIAL DIFFERENCES:

·        Structure: Private lenders can be individuals or even groups of investors pooling their capital. Hard money lenders tend to be more formalized businesses specializing in short-term real estate loans.

·        Loan Terms: Hard money loans often have very short terms, typically 6-9 months, while private lenders might offer somewhat more flexibility on repayment schedules.

·        Focus: Hard money loans are strictly secured by the real estate itself (the "hard" asset). Private lenders, while still focused on the property as collateral, might be more willing to consider the borrower's overall financial situation and exit strategy for the project.

IN ESSENCE:

·        Private lending can be a broader term encompassing a variety of non-bank real estate financing options with some flexibility in terms and potentially a more personal touch from the lender.

·        Hard money loans are a specific type of private lending with a strong focus on short terms, high interest rates, and the property itself as security for the loan.

Remember: Terminology usage can vary depending on the lender and region. It's always crucial to carefully review the specific loan terms offered by any private lender or hard money lender before committing to a loan.