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Private Money Vs Hard Money: What's The Difference?

Updated: Apr 30

Private Money Vs Hard Money: What's The Difference?

In our industry the terms private money and hard money are used interchangeably but there is in fact a distinct difference between the two. To add to the confusion many companies in the industry are moving away from using the term hard money lender, but more on that later. First let's break down private money vs hard money and what the difference is.

Private Money Vs Hard Money Lending

When it comes to getting a loan for real estate most people will turn to banks. Banks will have loan officers who evaluate your loan request based on credit history, income, current net worth and other similar factors. More often than not banks will have specific terms that are not open to negotiations. For a real estate investor this can be time consuming which is why they will often turn to either private money lenders or hard money lenders. 

Hard Money Lending

Hard money lenders are an organized group of money lenders that are not a bank but still operate as loan companies. Hard money lenders are seen as more mainstream than private money lenders due to the fact that they have many of the same criteria a bank would to determine who gets a loan. The difference is that hard money lenders will consider clients that banks typically turn down and take on projects which are outside of what banks are comfortable lending money for.

Private Money Lending    

Private money lenders are private citizens or groups of private citizens who offer to loan you money on their own terms. You could get a private loan from a friend, a family member, a company or from any other private citizen. While banks and hard money lenders have specific criteria for their loans, the terms laid out in a private money loan are regulated exclusively between the lender and the person looking for the loan. 

NPLA (National Private Lenders Association)

The NPLA (National Private Lenders Association) is a trade organization that was created to represent and protect the interests of private money lenders in the United States through legislation and public policy.

The NPLA just adopted a resolution that encourages ending the use of the term “hard money”. Like mentioned earlier a private money lender can be a company which is why they are often grouped in with hard money lenders. For a private lending company this can be a problem since the term “hard money” is often associated with high interest rates, unfavorable loan terms, lenders who re-trade loan terms, “loan to own” lenders, slow and inefficient draw funding, hidden fees / borrower charges and other unsavory business practices. “Hard Money” is also associated with lenders of last resort including, payday lenders, check advance, pawn shops, and others.

Since private money lenders cater to a more sophisticated market the NPLA is encouraging its members to opt out of using the term Hard money and instead use phrases like Private Lending, Bridge Lending, and Transactional Funding. Private money lenders fill such a vital role in improving and financing housing and other commercial real estate across our country. Through private money lending investors can get the type of financing that traditional real estate lenders are not set up to offer.

Work With A Private Money Lending Company

If you are a seasoned real estate investor you definitely want to stay away from companies that still use the term hard money and work with a private money lender like Alpha Tech Lending. Here are some of the advantages of the advantages:

  • Private loans are more flexible for the borrower

  • May be available even if loans from banks and hard money lenders aren’t given.

  • Private loans are much more negotiable. 

  • Time on the loan may be far shorter than hard money loans (great for fix and flip projects) 

  • Hard money loans have much more hoops to jump through making them only slightly more favorable than a traditional bank. 

For a seasoned investor that needs access to funds fast a private money lender is a much better choice

Private Money Vs Hard Money: Conclusion

While it isn’t always clear what the distinction is between the two, always remember it is better to go with a company that uses terms such as Private Lending, Bridge Lending, and Transactional Funding. For a real estate investor who has experience you will be able to get access to funds much quicker than you would through a hard money lender plus you will have more negotiating power and won’t have to jump through as many hoops. 

At Alpha Tech Lending we have a variety of loan programs that are ideal for both short term and long term projects. Our Pre-approval process and our loan application are easy to follow and you can always call us at 888-276-6565 or book an appointment to learn more. 


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