Hard money on commercial property: the myths, the real costs and when it is worth it

Not a bad idea, but an expensive one that needs a way out

Hard money is not automatically a bad idea for commercial property, but it is the most expensive and least forgiving financing in the market, and it should only be used when a deal cannot be financed conventionally on the timeline you have. It makes sense when the property does not yet qualify for bank or agency debt, the deadline is too short for a conventional lender, or the value you will create clearly exceeds the cost. It is the wrong move when cheaper money is available or when the exit depends on hope.

Our own hard money page says these loans should only be used as a fallback, and I agree. At Terrydale Capital we arrange hard money when it is the right tool, but we look at every other option first. Most of the trouble I see with hard money comes from a handful of myths, so I will take them one at a time.

Myth: hard money is only for borrowers with bad credit

Credit problems are one reason borrowers use hard money, but far from the only one. In a post on our site about hard money in Texas, we list the situations where it fits: a property that does not yet qualify for conventional debt because of low occupancy, deferred maintenance or environmental issues; a timeline too short for a bank, such as a competitive contract, a foreclosure or an estate sale; and a borrower who does not fit conventional underwriting because of a complex ownership structure, self-employment income, a recent credit event or limited history.

Plenty of experienced, well-capitalized investors use hard money for the first two reasons. They are not buying it because no one else will lend to them. They are buying speed and flexibility for a short period, with a clear plan to replace it. The borrowers who get hurt are usually the ones who reach for hard money first, before anyone has checked whether a bank, bridge lender or family office would take the same deal for less. That check costs very little and can save tens of thousands of dollars in points and interest.

Myth: the interest rate is the cost

The rate is only the most visible cost. Our post cites Lightning Docs data showing an average Texas hard money rate of 10.14 percent in the second quarter of 2026, across 1,130 loans, up from 9.38 percent in the first quarter. Commercial deals often run higher than residential fix-and-flip loans. In the Dallas–Fort Worth area, which has the deepest lender pool in the state, we put current rates around 10 to 12 percent.

Then come the costs that do not show up in the rate. Taken together, our post estimates the all-in carrying cost of hard money at roughly 12 to 18 percent annualized. That is the number to compare against your business plan, not the coupon.

• Origination fees of 1.5 to 3 points, so 2 points on a 2-million-dollar loan is 40,000 dollars
• Extension fees of 0.5 to 1 percent of the balance for each extension period
• Interest reserves, often two to three months of interest funded from your equity
• Appraisal, property condition and environmental reports, paid by you even if the loan does not close
• Legal and closing costs on a loan you will refinance again within a year or two

Myth: hard money will fund almost the whole purchase

Because hard money lenders focus on the property rather than the borrower, people assume they lend aggressively. The opposite is true. Our post puts commercial hard money leverage at about 60 to 75 percent, with standard deals capped around 65 to 70 percent of as-is value. Strong borrowers on lower-risk deals can reach 75 percent, while first-time borrowers on complex deals are more often at 60 to 65 percent. Value-add and construction deals may be underwritten on loan-to-cost instead.

The lender is protecting itself with equity because it is not relying on your income or credit. So hard money rarely solves a shortage of cash. It solves a shortage of time or a property that is not yet bankable.

Myth: hard money and bridge loans are the same thing

They overlap, but they are different products. Hard money is asset-based, with minimal documentation, the fastest close and the highest rate. Institutional bridge lenders underwrite more like conventional lenders, so sponsor credit and track record matter, and our post puts their pricing around 8 to 11 percent for Texas commercial deals, with more paperwork and slower closings. Conventional bank loans are cheapest and slowest, and strictest on both borrower and property.

That difference matters. A borrower who could qualify for an institutional bridge loan but takes hard money because it was the first offer pays several points more than necessary. If you are deciding which short-term route fits your situation, this is a good time to compare them side by side.

When the value you create justifies the cost

Hard money earns its keep when the spread between what you pay and what you create is wide. Our post walks through an example: a 12-month loan at 11 percent on a 3.2-million-dollar purchase costs about 352,000 dollars in interest. If the business plan creates 1.5 million dollars in value, that cost can be well worth it. If it creates 400,000 dollars, it probably is not, once fees and reserves are added.

The same logic applies to a deadline. If hard money lets you close a purchase that would otherwise be lost, or pay off a maturing loan before a forced sale, the cost needs to be compared to the alternative, not to a bank rate you cannot get in time. Typical terms run 12 to 24 months with a balloon payment, and our post notes closings can happen in about 5 to 15 business days in many cases, against 60 to 90 days for conventional loans. I explain where those conventional weeks go in how long a commercial loan takes to close.

Myth: you can work out the exit later

This is the myth that causes the most damage. Hard money is short, and at maturity you either refinance or sell. Our post is clear that the exit plan has to exist before you sign. For a refinance, you should know the net operating income, occupancy, coverage ratio and rate the permanent lender will need. For a sale, you need a realistic as-improved value and a sense of how quickly that market moves.

Extensions are not a plan. They cost fees, they are not guaranteed, and they buy months while interest keeps running. Exits built on rising values or unusually fast lease-up are the riskiest of all. If the takeout is a permanent apartment loan, read agency, bank or bridge for an apartment building before you sign, so you know exactly what the property must look like to qualify.

When hard money is simply the wrong tool

If conventional financing is available and your timeline allows it, use it. Our post illustrates the gap: on a 2-million-dollar loan, the difference between 6.5 percent bank debt and 11 percent hard money is about 90,000 dollars a year. Hard money is also the wrong fit for long-term holds, because the short term forces a refinance or sale whether or not the market cooperates.

It is also the wrong answer when the real problem is that the deal does not work. If a bank declined because the price is too high for the income, more expensive debt makes that worse, not better. My guide to what a commercial loan decline means covers how to tell a fixable decline from a deal that should be renegotiated. And if you are facing a maturing loan on a stabilized building, a planned refinance, as I describe in refinancing a maturing apartment loan, is almost always cheaper than a hard money rescue.

Questions to put to any hard money lender before you sign

Hard money term sheets vary more than conventional ones, and the differences hide in the details. Get every answer in writing, and compare offers on total cost over the period you realistically expect to hold the loan, including one extension, rather than on the rate alone.

• How many points are charged at origination, and are there exit or prepayment fees?
• What is the loan based on: as-is value, purchase price or total project cost?
• How are renovation funds released, and how long do draw inspections take?
• How many extensions are available, at what fee, and with what conditions?
• Is an interest reserve required, and how many months?
• Is there a personal guarantee, and what triggers default interest?
• What happens if the appraisal comes in below the price?

How we handle a hard money request

When someone asks us for hard money, the first thing we do is check whether they need it. We underwrite the deal and look at bank, bridge, debt fund and family office options before landing on the most expensive capital. If hard money is the right answer, we present the deal to lenders who fit it and negotiate on rate, points, extensions and reserves, not just the headline number.

Short-term lenders typically ask for a property description and photos, an appraisal or comparables, the purchase price or payoff, a line-item renovation budget, a written exit strategy, your experience and entity documents. Have those ready and we can move quickly. Terrydale is based in Dallas, and you can submit the deal through Terrydale Live or schedule a call with me. If hard money is a bad idea for your deal, I will tell you, and we will look for the better route together.

Questions people ask me