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A hard money loan is a specific type of asset-based loan financing which a borrower receives funds secured by the value of a parcel of real estate or other thing of value such as titled motor vehicles, RV's, boats, yachts, airplanes, helicopters,yellow iron, equipment, etc.. Hard money is similar to a bridge loan which usually has similar criteria for lending as well as cost to the borrowers. The primary difference is that a bridge loan often refers to a commercial property or investment property that may be in transition and does not yet qualify for traditional financing, whereas hard money often refers to not only an asset-based loan with a high interest rate, but possibly a distressed financial situation, such as arrears on the existing mortgage, or where bankruptcy and foreclosure proceedings are occurring, or short term capital for payroll or other needs.
Many hard money loans are made by private investors, generally in their local areas. Usually the credit score of the borrower is not important, as the loan is secured by the value of the collateral property. Typically, the maximum loan to value ratio is 40-60%. That is, if the property is worth $100,000, the lender would advance $40,000-60,000 against it. This low LTV provides added security for the lender, in case the borrower does not pay and they have to foreclose on the property.