A hard money loan is an alternative form of financing that allows borrowers with poor credit scores or lack of financial documentation to obtain a loan quickly. Rather than using a borrower’s financial situation as the basis for giving out a loan, hard money lending looks to the collateral — that is, the real estate property — for loan approval. This makes it possible for those without verifiable income, tax returns or credit scores to receive funding, even if they are facing foreclosures or credit defaults. Hard money loans are often known as “bridge” loans. They are the unlikely savior of the borrower unable to secure traditional financing. It offers a short-term solution with a high interest rate and closing costs, but can make a vast difference to an investor who needs quick money.

Hard money loans are different from conventional loans as they are derived from the asset’s value rather than the borrower’s creditworthiness. This means that a hard money loan can be secured even if the borrower has poor credit or no tradable assets. The loan is not based on borrowing power, but is based on the estimated value of the asset.

These loans usually carry a higher interest rate than conventional financing and have a shorter repayment period—typically from one to five years. This is because lenders view hard money loans as riskier than traditional bank loans, meaning the borrower is expected to pay a higher fee for the privilege of taking out a loan. The interest rate and associated fees will vary based on asset type and the lender, so it is important to shop around and compare rates from multiple lenders.

For those investors looking for quick financing with loan terms that are difficult to obtain through traditional routes, hard money loans can be an ideal option. These types of loans provide a great deal of flexibility, and can offer alternative financing options to those in need. These funds can be applied to various types of investments, such as commercial real estate, fix-and-flip investments, and much more.