Hard money loans are short-term, asset-based financing for commercial, multifamily, and hospitality real estate — similar to bridge loans, but with higher interest rates and much faster closings. Randy Efron of Skylatus Property Capital explains what makes hard money different, who actually provides this capital, and why it's typically viewed as a loan of last resort rather than a first choice.
What this guide covers
What Is a Commercial Hard Money Loan?
A hard money loan is short-term, asset-based financing similar to a commercial bridge loan, except hard money typically comes with a higher interest rate and closes much faster. Hard money loans are commonly used by borrowers who have very short timeframes to close a transaction, or by borrowers with credit blemishes who have a hard time getting approved for other types of financing.
Who Provides Hard Money Loans?
Hard money lenders tend to be high-net-worth individuals, family offices, or small companies that aggregate capital from high-net-worth individuals. Hard money loans are usually not offered by banks or institutionally oriented debt funds, partly because the product carries something of a negative connotation in the broader lending market.
Because the capital typically comes directly from a high-net-worth individual or a small group managing that capital, there's usually no red tape to work through. If the person managing the money likes the deal, they make the loan — the only constraints are the ones they set for themselves. There's typically no investment committee or head of underwriting to answer to, which is exactly why diligence on a hard money loan tends to be lighter than with other lender types, and why closings can happen in a matter of days to a couple of weeks.
Hard Money Loans vs. Bridge Loans
Hard money and bridge loans are often mentioned in the same breath because both are short-term, asset-based financing used to get a deal closed before refinancing into a cheaper, longer-term loan product. The key differences come down to speed, cost, and who's providing the capital.
| Feature | Hard Money Loan | Bridge Loan |
|---|---|---|
| Typical Lender | High-net-worth individuals, family offices, small capital aggregators | Debt funds, institutional bridge lenders, banks |
| Closing Speed | Days to a couple of weeks | Weeks to a couple of months |
| Underwriting Diligence | Light — minimal formal process | More thorough, often includes an investment committee |
| Interest Rate | Double digits (10%+) | Lower than hard money, still above permanent debt |
| Best Fit | Very time-sensitive deals, credit-challenged borrowers | Value-add and transitional deals with more underwriting runway |
Structural Terms: Rates, Points, and Sizing
Given the light diligence, fast closing timeline, and willingness to overlook credit blemishes, hard money loans typically come with interest rates in the double digits — generally 10% and above.
| Term | Typical Structure |
|---|---|
| Interest Rate | 10% and up |
| Fees | Points typically charged at origination, extension, and payoff |
| Loan Sizing | Based primarily on the property's value rather than its current cash flow |
| Recourse | Varies by lender |
| Amortization | Usually interest-only |
| Prepayment | Some loans carry prepayment penalties; many can be prepaid at any time without fees |
| Hold Period | Short-term by design — used to close quickly, then refinance into a cheaper loan product |
Hard money loans are generally a loan of last resort, given their high interest rate and fee structure. They're a tool for getting a time-sensitive or credit-challenged deal closed — not a permanent financing strategy.
When a Hard Money Loan Makes Sense
Hard money financing tends to make sense in a narrow set of situations:
- The transaction has a very short timeframe to close, and conventional or bridge financing can't move fast enough
- The borrower has credit blemishes that make approval difficult with banks, debt funds, or other institutional lenders
- The plan is to close quickly now and refinance into permanent or bridge financing shortly after — see our guide to commercial real estate loan categories for how that refinance conversation typically plays out
Because loan proceeds are sized primarily off the property's value rather than its current cash flow, hard money can also be a fit when a deal doesn't yet cash-flow well enough to qualify for financing sized around debt yield or DSCR — though that gap in underwriting is exactly why the rate and points are so much higher.
Related Capital Structure Resources
If you're evaluating short-term or transitional financing options, you may also want to review:
Frequently Asked Questions
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