What are the Pros and Cons of Hard Money Lending?

Nontraditional Mortgages
Keeping all your options open when it comes to financing is crucial to every business. Understanding everything about hard money lending, including both the pros and cons, will allow you to make an informed decision about what choice is best for you.
Published on
July 27, 2023
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If you're reading this, chances are that you've considered a hard money loan in order to help fund your next project. Hard money loans have become more popular over the last decade as an alternative to traditional financing. While there are still some questions about the safety and security of these loans, it's important to understand what they offer and how they work before jumping into anything too hastily.

What is a Hard Money Loan?

A hard money loan is a short-term loan that's typically used to purchase real estate. It's typically given by private investors or companies with access to large amounts of capital, not banks or other traditional lenders like credit unions and mortgage companies. The term "hard" means that the loan doesn't have any special features like those found on traditional mortgages (e.g., interest-only payments). Instead, it requires its borrowers to pay all principal every month along with interest charges—and it usually comes with higher interest rates than other types of loans.

The Advantages of Hard Money Loans

There are many benefits to hard money loans. Here are a few of the top:

  • Fast closing. A typical loan will take 30 days to close, while hard money loans can be funded in as little as 7-14 days. This is because there's no need for an appraisal or income verification; the lender doesn't care where you work or how much your income is! You don't have to worry about a credit check either since the lender does not require it (although it will still run one on you).
  • No appraisal required. The value of an asset or property isn't as important when applying for a hard money loan, as long as it's worth enough for them to make money off of after all fees and costs associated with foreclosure have been factored in. This means you don't have to worry about whether or not your home appraises—it doesn't matter!

You can use the money for almost anything. While traditional loans are only used for buying property, hard money loans can be used for many different purposes such as: Debt consolidation. Business expansion. Construction or renovation of commercial space, refinancing an existing property or cash-out refinancing with equity release.

The Disadvantages to Hard Money Loans

Hard money loans have many advantages, but that doesn't mean they don't have any disadvantages. The most significant disadvantage to a hard money loan is the cost of borrowing. Because hard money lenders are more expensive than traditional banks, your interest rate will be higher. If you're looking for an investment property and need fast cash, this may not matter much to you—but if you plan on owning the property for long term (and therefore want a lower monthly payment), it could be a deal breaker.

Another disadvantage of hard money lending is the credit requirements for borrowers with less than stellar credit history. Borrowers without strong or perfect credit can still qualify for conventional mortgages with some extra effort—but most high-yield investors only work with borrowers that already have ample experience investing in real estate and strong track records as business owners or entrepreneurs. This means that while there are options out there for those who are trying to get back on their feet after bankruptcy or foreclosure (or other financial setbacks), they may not be able to reach their full potential financially until they've built up enough capital over time through other investments first.

There are both benefits and drawbacks to hard money lending, It's important to weigh your options carefully.

Hard money loans are a great option for those who need quick cash to start or grow their business. With hard money, you can get financing within days, sometimes even hours.

Hard money loans are also beneficial to borrowers with bad credit—if your credit score is below 600, you will likely have difficulty getting approved for a traditional loan through major banks. This is not always the case with hard money loans; many lenders will consider any borrower with a good business plan regardless of their personal finances.

Hard money can be more expensive than other options like personal and home equity lines of credit (HELOCs). In addition to interest rates that range between 10% and 20%, hard money lenders may charge origination fees or prepayment penalties if you pay off the loan early.


Hard money lending is a great option for borrowers who need quick funding, but it's not right for everyone. Before taking out a hard money loan, you should weigh the pros and cons carefully to determine if this kind of financing makes sense for your business.

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