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What’s the difference between “private money” and “hard money” lending?

Updated: Jun 30, 2021

We all have heard the terms "private money" and "hard money" before. Are they different? What do the terms really mean?

“Private money” often refers to funding that is closer to the borrower, maybe a family member, friend, business partner, or other acquaintance. In many situations, the private money loan is from a source that isn’t typically in the business of providing loans. Because of the relationship between the lender and the borrower, a private money loan may have more flexible terms and a lower interest rate than an equivalent hard money loan. In most situations, your ability to get a “private money loan” is very dependent upon who you know.

Hard Money Lenders are typically companies who are in the business of lending money. Because these companies are in the lending business and actively look for borrowers, there is much easier access to “hard money” than “private money”. Generally, the hard money lender is going to require some “hard” assets supporting the loan… usually (but not limited to) real estate. While the hard money lender probably has more flexibility in the lending requirements than an institutional lending company, they still will probably have some set requirements that must be met in order to fund your loan.

If you are looking for a lending partner, both types of loans should be in your pool of resources.

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