Hard Money vs Soft Money : What is the difference

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Hard money and soft money are two terms that are used regularly when it comes to investing in real estate. But what do they really mean? How does hard money vs soft money differ? And which is the one you should go for as a real estate investor? We have covered all this and more.

Hard money is a type of loan which is backed by an asset that is taken for short-term financing and is arranged by private lenders or individuals while soft money loans are traditional loans obtained from a bank or mortgage firm.

A hard money loan takes less time for approval around 2-5 days whereas a soft money loan takes about a month to approve. Soft money needs a lot of paperwork and needs a minimum of 600 credit score, on the other hand, a hard money loan does not require a credit score or it takes very less paperwork to get approval.

In this article, we will see the difference between hard money vs. soft money loans to assure which is a better fit for your requirement:

Hard money

A “hard money loan” is a loan backed by asset such as a property investment. A hard money may be an excellent alternative for you to consider if you’re a house flipper or a real estate investor in need of funding for a deal.

What is hard money and how does it work?

The term “hard money” refers to a sort of financing that is typically applied in property investment. Asset-backed loans, and bridge loans, are all types of hard money loans. It is short-term funding is offered by hard money loans, which are often secured by a commodity. Hard money loans are only available through small investors or private lenders because traditional banking institutions do not offer them.

These loans can be a faster and easier option to acquire an investment without the requirement for a conventional financing method or the approval procedure that most financial institutions need. These loans do not depend upon the borrower’s creditworthiness because they are asset-based.

Soft money

Soft money loans are traditional loans obtained from a bank or mortgage firm. Soft money is a long-term property investment financing program that closes is about 30 days to several months but at a lower interest rate.

​This form of the lending program involves more underwriting than a hard money loan, which allows for cheaper rates and long-term repayment from soft money financing can be used to buy or refinance retail assets, commercial buildings, multifamily housing, and  1-4 rental units such as apartment complexes.

Hard money vs Soft money : The Differences

Hard and soft money are common choices in the market. Let’s look at the main differences between hard and soft money:

  • To borrow hard money, you must have a defined purpose and a specific repayment schedule in mind. Borrowed money is referred to as “soft money.”
  • A hard money closing can take as little as two business days, whereas a soft money closing can take up to thirty days. Hard money requires less paperwork than soft money.
  • There are more lenders for hard money than there are for soft money.
  • When a borrower takes out a hard money loan, he or she gets the money and the lender gets the collateral. The term “soft money” refers to a form of asset-based finance that incorporates elements of both hard money and the traditional loan model.
  • When it comes to loan structure, hard money allows you more leeway, whereas soft money imposes its own set of constraints.
  • The interest rate on hard money is high because the lender is taking a big risk. Hard money is not given out based on a person’s credit score, but rather on the value of the property being used as a collateral. Between 7% and 8%, the interest rate is available. 
  • In countries like the United States, soft money is tightly regulated and subject to severe regulations. Hard money, on the other hand, has no such limits or governing body.
  • Because hard money is tied to property, it is more difficult to acquire than soft money.
  • Short-term loans are better suited to hard money. Long-term objectives are best served with soft money.
  • Getting a hard money loan is a lot easier than getting a soft money loan because they don’t look at your credit history or your credit score.
  • Hard money loans are typically used to buy homes that are in need of repair, as the lender is protected by the collateral. In most cases, soft money is used to finance properties that are in good shape.
  • The interest rates of hard money is greater since the quantity is large and the time period is brief, however the interest rate of soft money is lower than hard money.


Based on your needs, you can choose the type of loan that is best for you. For long-term investments, soft money is preferable; for short-term investments, hard money is a viable option, as long as the investor is willing to pay high interest rates. A hard money loan is perfect for short term investments in real estate because of its structure.  Hard money loans such as fix and flip loans are ideal for projects that require a huge amount of money for a short period of time.

To quickly fund your next real estate investment project, get access to hassle-free hard money loans from seasoned lenders like 14th Street Capital. Preliminary approvals can be obtained in as little as 5-10 days, allowing investors to close their loans sooner. 14th Street Capital, the premier funding source for your real estate investment, makes acquiring a hard money loan simple.