Hard money is the most expensive money in commercial real estate that a sane borrower still uses on purpose. The question is never whether it costs more — it does, obviously and by a lot — but whether the speed it buys is worth more than the premium it charges.
That is an arithmetic question, and most borrowers never actually do the arithmetic. This guide does it.
What is a hard money loan for commercial real estate?
A hard money loan is short-term, asset-based financing secured by the property rather than underwritten primarily on the borrower's credit or income. Lenders are private funds and specialty shops, not banks. Terms typically run 6-24 months, interest-only, at 60-75% LTV, priced around 9-13% with 1-3 points, and can close in one to three weeks.
The defining feature is what the lender looks at. A bank underwrites the borrower, the property, and the income, then a credit committee meets on a schedule. A hard money lender underwrites the collateral and the exit, and can decide quickly because the loan is small relative to the value backing it. You are paying for a decision, not just for capital.
Common commercial uses: an acquisition with a short closing window, a property that cannot yet support conventional debt, a value-add business plan pre-stabilization, a partnership buyout, a maturity default that needs refinancing before a foreclosure clock runs out, or a property with a title or condition problem a bank will not touch until it is cured.
What do hard money lenders charge?
Expect 9-13% interest, 1-3 points in, and often an exit fee or minimum interest guarantee. On a nine-month hold that stacks into real money, and the minimum-interest term is the one borrowers miss: many loans guarantee the lender 6-9 months of interest even if you repay in month three.
The line items to price before you sign:
- Rate — usually fixed or SOFR-indexed, interest-only, charged on the drawn balance.
- Points — 1-3% of loan amount, paid at closing, not refundable if you repay early.
- Minimum interest / prepayment — the guaranteed earning period. A 9-month minimum on a loan you repay in 4 months doubles your effective rate.
- Exit fee — 0.5-1% at payoff on some programs.
- Extension options — price and conditions matter more than they look, because construction and lease-up both run late more often than early.
When is a hard money loan worth the premium?
When the speed captures more value than the premium costs. Price both paths on the same deal and compare the difference against what speed actually buys you.
Take a $1.2M acquisition with a $780,000 loan held nine months:
| Hard money | Bank | |
|---|---|---|
| Rate | 11.0% | 7.5% |
| Interest, 9 months | $64,350 | $43,875 |
| Points | 2.0% = $15,600 | 1.0% = $7,800 |
| Total cost of capital | $79,950 | $51,675 |
The premium for speed is $28,275.
That number is the whole decision. Hard money is rational if — and only if — closing in two weeks instead of ten captures more than $28,275 of value. Three situations where it plainly does:
- A seller discount for certainty. If a two-week close wins the property at $60,000 under the price a financed buyer would pay, the premium bought $60,000 for $28,275.
- A deal you would otherwise lose entirely. If the alternative is not a slower close but no deal, the comparison is not $79,950 against $51,675 — it is $79,950 against zero return on the whole opportunity.
- A clock you cannot move. A maturing loan, a 1031 exchange deadline, or a foreclosure sale date does not care that a bank is cheaper.
And the situation where it plainly does not: a stabilized property with clean financials, no deadline, and a willing bank. Paying $28,275 to move faster than a deadline that does not exist is just an expensive way to buy the same asset.
What do hard money lenders actually require?
Less than a bank, but not nothing. Expect an appraisal or broker opinion of value, a title commitment, proof of insurance, an entity borrower with a personal guarantee, and — most importantly — a credible, documented exit: a sale contract, a refinance takeout, or a business plan with dates.
The exit is where these loans are won and lost. A hard money lender is underwriting how it gets repaid in twelve months, not how the property performs in year five. A borrower who cannot articulate the exit precisely is asking the lender to guess, and lenders price guesses.
What matters less than borrowers expect: personal income documentation, tax returns, and credit score below the program's floor. What matters more: liquidity to carry the loan, experience with the specific business plan, and whether the property's condition matches what the scope says.
How do you find the right hard money lender?
Program criteria vary widely — minimum loan size, property types, whether they lend on vacant or non-cash-flowing assets, geographic footprint, and appetite that moves quarterly. Matching a packaged deal against current criteria beats calling down a list, because most rejections are program mismatches rather than deal problems.
YieldStack is a commercial mortgage broker and financing marketplace — not a lender. One submission is pre-screened for bankability and matched at the program level against 5,000+ loan programs, including hard money, bridge and other short-term structures. Competing terms come back side by side rather than one at a time, and the median time to a first lender offer is under an hour. There is $0 upfront and a 0.50-1.00% success fee only when the loan closes; every credit decision is made by the participating lender.
The bottom line
Hard money runs 9-13% with 1-3 points and closes in weeks instead of months. On a $780,000 loan held nine months that is a $28,275 premium over a bank. Pay it when speed wins a discount, saves a deal, or beats a deadline — and not otherwise.
Submit your deal at YieldStack. $0 upfront — 0.50-1.00% at closing only.