What is one characteristic of a hard money loan?

A hard money loan is typically characterized by being funded by private investors. This type of financing is not well-suited to the traditional banking system, often due to its risk profile and the borrower’s creditworthiness. Instead, hard money loans are sourced from individual lenders or private lending companies that are willing to take on higher risk in exchange for higher returns, making them an attractive option for those seeking quick access to funds or who may not qualify for conventional loans.

Moreover, hard money loans usually come with higher interest rates compared to traditional financing options, reflecting the risk that private lenders assume. Additionally, these loans are often secured by real estate collateral, mitigating the lender’s risk. Traditional banks typically do not issue hard money loans, focusing instead on borrowers with strong credit and lower risk profiles. This helps clarify the distinctive role that private investors play in the financing landscape through hard money lending.