A hard money loan is a specific type of asset-based loanfinancing through which a borrower receives funds secured by the value of a parcel of real estate. Hard money loans are typically issued by private investors, trusts, or institutions. Interest rates are typically higher than conventional commercial or residential real estate loans because of the higher risk taken by lender.
Most hard money loans are used for projects lasting from a few months to a few years. Generally, private investors seeking a higher rate of return on investment are the individuals or entities lending hard money.
Hard money loans carry interest rates even higher than non prime loans. Since traditional lenders, such as banks, do not make hard money loans, private/hard money lenders are sometimes private individuals that reasonably foresee value in the scenario. Hard money loans are used in turnaround situations, short-term financing, and by borrowers with poor credit but substantial equity in subject property that wish to fix & flip properties, or source cash against properties for business purposes.