When is a “Hard Money Loan” NOT a Hard Money Loan

Hard money loan

Different private and hard money lenders have different criteria for approving and funding a commercial mortgage loan. Most people in the commercial lending space know what a hard money loan is – it’s a loan where the basis of the underwriting criteria is the property itself, and not the borrower. But this doesn’t mean that the strength and character ( or lack thereof) of the borrower is totally disregarded – it just means that the borrower is not the primary criteria. But almost all lenders want to have a decent chance of being paid timely.

So, with hard money lenders asking for PFS, income tax returns, and personal information on the borrower as well as the usual documentation for the real estate collateral, When is a “hard money loan” NOT a hard money loan?

In my experience, the answer is (1) when the borrower’s credit history or credit score plays a significant role in the lenders decision making process, and/or (2) when the borrower plays more than a secondary role in the underwriting decision making process. Another words, when the real property itself is no longer the major, primary, driver of the loan, then the loan no longer meets the criteria as “hard money”.

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