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Hard Money

The phrase sounds ominous. Many people have never heard of it. First, a quick study on economic fundamentals: Supply and Demand Equilibrium… when the Supply of something exactly matches the Demand.

Huh?!?!? Let’s take building materials… in a perfect world, suppliers would be able to sell all the plywood they make and consumers can get all the plywood they want.


Time is an important aspect of the Supply and Demand Relationship… Try buying plywood within days of a hurricane.

An approaching hurricane will suddenly increase the demand for plywood. Suppliers cannot produce enough and consumers cannot get all that they want. In this Supply and Demand Relationship, the price point will increase as the Demand shifts and the Supply is restricted.


The price of something will continue to increase as more people want it and there is not enough of it to go around. If the price gets too high then people will not buy it or will seek out an alternative.

The same holds true for money in today’s environment. It is not necessarily that the money supply has shrunk, but simply that lending practices have been tightened-up. Banks are not lending like they have in the past.

The price of borrowed money is at historically low levels but the effect is the same… the Supply of borrowed money is restricted. Your credit history, employment status, and conceptual ability to pay may further restrict your access to borrowed money.


Hard Money, sometimes referred to as Peer-to-Peer Lending, is a loan made by individual lenders using private capital.

So, if you need a loan and cannot get one from a bank, you may want to consider Hard Money. From our previous lesson on economics, the price of plywood will increase as the hurricane gets closer. If your source of borrowed money is restricted, Hard Money might be available, but at a higher price point. Hard Money can get very expensive.

How expensive? You can expect to pay upwards of a 21% interest rate and possibly 21% in lenders fee in addition to other closing costs.

Why in the world would anyone pay these exorbitant prices? Well, if a hurricane is approaching and you need plywood to save your home, what price would you be willing to pay for that plywood? If you are facing foreclosure or need working capital to save your business, your options may be severely limited.

A Hard Money lender will generally not care about your credit score, tax returns, or income level. However, you will need at least 70% equity in your land or home and a workable exit strategy.

Now, let’s explore the other side of this equation. If someone is buying high-priced plywood then someone else must be selling it. It has, at times, been called price gouging when someone is perceived to be selling overpriced plywood to hurricane victims.

It can also be called a business opportunity. Let’s assume a hurricane is going to hit Cocoa Beach Florida. An enterprising person here in Cleveland, Georgia uses their life savings to buy-up all the available plywood, batteries, and generators, and hauls it down to Florida. This is an entrepreneur… a person who takes personal resources and assumes all of the risk for the outcome.

There is certainly a moral, philosophical dilemma here. But if you have access to cash or private capital, there are people willing to pay a very high price to use your money.

Risk? Yes, and lots of it for both the borrower and the lender. The borrower needs to carefully analyze the implications of using Hard Money. Sometimes the cost cannot be justified. The lender needs to consider that the borrower may not be able to repay the loan, that the borrower could declare bankruptcy, or that you may need to foreclose and evict.  A loan secured with a hard asset or real estate is essential to protect the lender.

Every Hard Money case is unique so there is no pre-determined formula. There is no established infrastructure for billing and collecting on private loans. You, as the lender, may need to do everything yourself.

Or, you may want to consult a financial professional. We have been providing solutions for Hard Money borrowers and lenders for many years with a very high level of success.

The information presented here is for educational purposes only and shall not be construed or interpreted as a solicitation to sell or offer to sell any specific securities, investments, or investment strategies. The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.