Hard Money is a term that is used almost exclusively in the Unite States and Canada where these types of loans are most common. In commercial real estate, hard money developed as an alternative "last resort" for property owners seeking capital against the value of their holdings. By taking a (short term) hard money loan, the borrower often saves equity and extends his time to get his affairs in order to better manage the property.
Hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by the value of a parcel of real estate. Hard money loans are typically issued at much higher interest rates than conventional commercial or residential property loans and are almost never issued by a commercial bank or other deposit institution. Hard money often refers to not only an asset-based loan with a high interest rate, but possibly a distressed financial situation, such as arrears on the existing mortgage, or where bankruptcy and foreclosure proceedings are occurring.
Many hard money mortgages are made by private investors, generally in their local areas. Usually the credit score of the borrower is not important, as the loan is secured by the value of the collateral property. Typically, the biggest loan one can expect would be between 65% and 70% of the property value. That is, if the property is worth $100,000, the lender would advance $65,000–70,000 against it. This low LTV (loan to value) provides added security for the lender, in case the borrower does not pay and they have to foreclose on the property.
Commercial hard money is similar to traditional hard money, but may sometimes be more expensive as the risk is higher on investment property or non-owner occupied properties. Commercial Hard Money Loans may not be subject to the same consumer loan safeguards as a residential mortgage may be in the state the mortgage is issued. Commercial hard money loans are often short term.
