Hard money, in terms of loans, is a loan that uses collateral or an asset in order to secure the amount borrowed. This option is used when an individual cannot qualify for a traditional loan due to poor credit or low income.
This type of loan is given not based on the individual's financial position, but rather based on the ability of the lender to sell the asset if the loan is not repaid as agreed. Typically, a hard money loan is short-term, lasting between one to five years. Hard money loans usually have higher interest rates than traditional loans and feature low loan-to-value ratios of between 50 to 70 percent.