Home / Compare / Hard money vs Private money
Hard money vs private money.
The two terms get used interchangeably and they should not be. The difference is who is lending and how the deal gets structured.
The two instruments
What each one actually is.
Hard money
Short-term, asset-based lending from a business whose primary activity is making these loans, with standardized underwriting around the property's value, the loan-to-value ratio, and a documented draw process for renovation funds.
Private money
Capital from an individual or a small relationship-based source, such as a private investor, a self-directed IRA, or someone in your own network, with terms negotiated deal by deal rather than off a set program.
Side by side
The comparison.
| Factor | Hard money | Private money |
|---|---|---|
| Who the lender is | A lending business, even a small one, for whom this is the primary activity. | An individual or a small group of individuals lending their own capital. |
| Consistency of terms | Standardized: published or near-published criteria, applied the same way deal to deal. | Negotiated fresh each time, based on the relationship and that specific deal. |
| How fast you can find one | Findable on your own timeline. A lender who advertises is a lender you can apply to today. | Depends entirely on who you already know or can be introduced to. |
| Documentation and process | A defined application, a term sheet, a documented draw schedule for rehab funds. | Can be as informal as a promissory note and a handshake, or as formal as the two parties agree to make it. |
| Repeatability | The same lender will likely fund your next ten deals under similar terms. | Depends on that person continuing to have capital and continuing to want to lend it to you. |
| Risk if the relationship changes | Low. The lender's business does not depend on any one relationship. | Higher. A falling-out, a life event, or a change in that person's own finances can end your funding source. |
| Best for | An investor who wants a repeatable source of capital they can plan a pipeline of deals around. | An investor with a strong existing relationship and a lender willing to move on trust rather than a program. |
The verdict
When each one is actually the right call.
The honest answer is not always the one that leads to a submission on this page. Both are stated here.
Choose hard money when you want a source you can plan around.
If you intend to do more than one or two deals, a lender running this as a business gives you criteria you can underwrite against in advance and a process that does not depend on one person's mood or liquidity that week. That consistency is worth more than it sounds like once you are trying to move on a deal quickly.
Choose private money when the relationship is real and the terms are genuinely better.
A private lender who knows you and trusts the deal can sometimes offer terms no program will match, precisely because there is no program to conform to. That is a real advantage when the relationship is solid. It is a real risk when it is not, because there is nothing standing behind that capital except one person's continued willingness to lend it.
Questions
Answered without the phone call.
Are hard money and private money the same thing?
Not quite, though the terms overlap in everyday use. Both sit outside conventional bank financing and both are asset-based, but hard money usually means a standardized lending business, while private money usually means an individual or small group lending on negotiated terms.
Is private money cheaper than hard money?
Sometimes, if the relationship is strong and the private lender is motivated by more than pure return. There is no rule that makes it cheaper, and plenty of private arrangements cost as much as or more than a standardized hard money loan.
Can a hard money lender also be a private individual?
Yes. Many hard money lenders are individuals or small operations lending their own capital, which is exactly why the line between the two terms is blurry. What separates them here is whether the lending is run as a repeatable business with set criteria or negotiated fresh each time.
Which one closes faster?
Either can close in days when the lender is ready to move. A private lender with capital sitting available can sometimes beat a hard money lender's own process; a hard money lender's documented process can sometimes beat a private lender who has to think it over.
Do I need an entity to borrow from either one?
Most lenders in both categories prefer to lend to an entity in good standing rather than to an individual, for liability and title reasons. Ask directly, since practice varies.
Further reading
Small hard money loans, and why most lenders will not do them
The reason a $40,000 deal gets declined has nothing to do with the deal. It is fixed cost. Here is the arithmetic, and where the floor actually sits.
Hard money for a first flip: what changes, and what does not
First projects get funded routinely. What sinks them is almost never inexperience, it is a scope of work that was never going to hold.
Hard money loan requirements: what a lender actually checks
Hard money is underwritten on the property and the exit, not your tax returns. Here is the full list of what gets checked, and what does not.
Submit a deal
Let's see which one fits.
Send the property and the plan. If hard money or private money is not actually the right fit, that is part of the answer you get back.
- Terms in 24 to 48 hours
- Written, not verbal
- One person, start to finish