Hard Money vs. Bank Financing: When Speed Is Worth the Rate

Comparing a private loan to a bank loan on interest rate alone is like comparing an airline ticket to a train ticket on price alone. They are different products solving different problems, and the right question is which problem you have.

What a bank is optimised for

A conventional lender is optimised for cost of capital. It can offer a low rate because it lends against strict, standardised criteria: documented income, seasoned ownership, stabilised occupancy, a conforming property type and a borrower profile that fits a scorecard. The price of that low rate is time and rigidity. A bank file that hits a genuine exception does not get a workaround; it gets declined or re-underwritten from the start.

What a private lender is optimised for

A private lender is optimised for certainty and speed. We underwrite the property's equity and the borrower's capacity to make payments, then the exit. That means we can move on a file a bank cannot read: an entity formed for the acquisition, a property mid-renovation, a partial entitlement, a seller who will not wait 45 days. The price of that flexibility is a higher rate and a shorter term.

Doing the arithmetic properly

Suppose you are buying at $2,000,000 and you need to close in twelve days. Private financing at, say, 9% for six months plus points is a real cost, and it is knowable in advance. Set it against three things a rate comparison leaves out:

• The value of winning the deal at all. If the bank timeline means you do not close, the bank's rate is irrelevant — you own nothing.
• The cost of the alternative. An extension fee, a lost deposit, or a renegotiated price after a failed close are all real numbers.
• The holding period, not the annual rate. Private loans are short. The interest you actually pay is the rate multiplied by the months you are in it, plus points — not the rate multiplied by thirty years.

Run those and the comparison usually resolves cleanly in one direction or the other. If the deal has time and fits a bank's box, take the bank's money. If it does not, the private loan is not the expensive option — it is the only option that transacts.

The structures in between

The choice is not always binary. A construction facility that converts to a permanent low-interest loan at completion gives you private-lender speed during the build and conventional pricing afterwards, underwritten once. On multifamily, a bridge-to-stabilisation loan carries a property through a repositioning until its income can support agency or bank debt.

A short checklist

Choose private financing when: you need certainty of close on a date; the property is not yet stabilised or conforming; the borrower is an entity without the seasoning a bank wants; or the opportunity has a deadline. Choose conventional financing when: the property is stabilised, the timeline is generous, and the file fits the box.

Not sure which describes your deal? Describe it to us on the phone — (800) 943-1314 — and we will tell you honestly, including when the answer is “go to a bank.”