What's the Difference Between Private Money Loans and Hard Money Loans?
You've probably heard the terms "private money" and "hard money" before - but do you know what is really the difference?
“Private money” generally refers to funding provided by a family member, friend, business partner, or a person willing to lend you money short term usually at 7-12% interest per year with a lender fee. In short, a private money loan comes from a source that is short term (usually 1 year term). Given the relationship between the lender and the borrower, a private money loan may mean more flexible terms and a lower interest rate than an equivalent hard money loan but most private money loans are backed by real real estate also.
Meanwhile, “hard money” – whose name refers to the “hard” assets underlying the loan, such as real real estate – generally refers to funding provided by non-institutional lending companies with, usually, set and defined lending criteria. Hard money lenders are in the business of lending money and in far greater supply for the typical real estate borrower. They will build a relationship with the borrower and will work with them (almost like a partner) for long term on many different projects. This works since it is a win win situation for both (the borrower and hard money lender), the borrower will have funds to do more projects and the hard money lender gets approximately 15-17% interest per year or per project on their money