Hard Money vs. Private Money: Same Idea, Different Source

Both are property-backed loans made outside the bank system. The difference is who's lending. Hard money usually comes from a company whose business is making these loans. Private money usually comes from individuals, like a friend, family member or local investor, lending their own capital.

Who's on the other side of the table

A hard money or private lending company runs a repeatable process. It typically has written criteria, standard documents, staff who coordinate valuation, title and draws, and a pipeline of loans. RSC Private Lending is this kind of lender, with published programs for Fix & Flip, New Construction, Bridge and DSCR Rental loans.

A private money lender might be a retired business owner, a colleague or a relative with cash to put to work. They may lend once or a handful of times. Each deal is often negotiated from scratch.

People use the terms loosely, and some lending companies call themselves private lenders. What matters is how the loan is sourced and run.

How terms tend to differ

Lending company:

• Published or consistent loan structures
• Clear process for appraisals, draws and payoffs
• Pricing that reflects its cost of capital and risk
• Easier to repeat on your next deal

Individual private lender:

• Terms set by the relationship, so they can be very flexible or very rigid
• May not have draw, servicing or default processes in place
• Pricing can be better or worse, depending on the person
• Capacity is often limited to a few loans

Speed

Both can beat a bank. A lending company is fast because its process is built for speed. An individual can be quick when you already trust each other, or slow if you're negotiating every clause for the first time.

A side-by-side look

Example: You need to fund a $350,000 renovation. Your uncle offers $200,000 at a friendly rate but wants it back in nine months and has never handled a rehab draw. A lending company can fund most of the project with a set draw schedule but charges points. Some investors combine the two, using private money from a relative toward the down payment and a lender for the primary loan. If you do, make sure both loans' terms allow it and every lien and repayment priority is clear in writing.

What this means for you

Neither is better in every case. Choose based on the deal's size, timeline and complexity, and how much structure you need. And whoever you borrow from, put every term in writing.

Comparing a lending company with a private source for your next deal? Send RSC Private Lending your scenario for a term sheet in 24 hours, so you have written terms to compare. Subject to underwriting.