Hard money loans are loans in which real estate serves as the collateral asset. The lender assumes a lien position on the property, and if the borrower cannot repay the hard money loan, the lender may take the property and sell it to repay the loan. Higher interest rates and lower LTVs (loan-to-value ratios) are common because the lender is not backed by a government institution (unlike mortgages given by banks).
These loans are most commonly used as a type of bridge loan for temporary financing. As with other collateralized loans, the size, rate, and length of a hard money loan is determined by the borrower’s equity in the asset, the volatility of the asset and marketplace, and the financial standing of the borrower. Hard money loans are funded for business and personal use. The real estate asset may be business or personal property, and the proceeds of hard money loans are not restricted to business use.