What are the differences of a Hard Money Lender and a Private Money Lender?

[Ethan Gidcumb]

(Before you start reading, I think the overarching theme of this question is that the definition of a Hard Money Lender and Private Money Lender has changed throughout time. That can be the reason some people have differing opinions on how each group should operate in the real estate investment space. There was a lot of information I didn't mention in this post since each company and individual can operate differently so if there was something I failed to mention, please feel free to leave a comment).

The terms Hard Money Lender and Private Money Lender can be confusing because people sometimes use them to mean the same thing. Here is how I see it:

Private Money Lenders:

• Companies: These companies give loans based on the value of the property and the borrower's financial situation.
• Individuals: Wealthy individuals usually care most about the property and the borrower's experience. If both are good, they might give the loan. Individuals and small groups of investors can be more flexible. They have their own rules and might take a share of your profits instead of charging interest.

Hard Money Lenders:

• Nowadays, hard money loans usually come from bigger companies and are more regulated, making them similar to loans from Private Money Lending companies. However, some people might describe a Hard Money Lender like an Individual Private Lender, while companies calling themselves Hard Money Lenders might follow the rules of a Private Money Lending Company.

(To avoid confusion, I ask clients what kind of lender they are looking for and what is important to them. For example, if someone has a low credit score but a great investment deal, I might suggest finding an Individual Private Lender who cares more about the property than the borrower's financial status.)

Differences:

• Hard Money and Private Money Companies: These usually follow strict rules and have more money to lend because they have many investors.
• Individuals: They might offer more flexible loan terms since they decide the rules themselves. They usually have less money to lend, so they are more selective on which projects they finance.