How To Become A Hard Money Lender

How To Become A Hard Money Lender

December 7, 2023

Produced by:
Carmel Woodman

With over 8 years of expertise, Carmel brings a wealth of knowledge as the former Content Manager at a prominent online real estate platform. As a seasoned ghostwriter, she has crafted multiple in-depth Property Guides, exploring topics such as real estate acquisition and financing. Her portfolio boasts 200+ articles covering diverse real estate subjects, ranging from blockchain to market trends and investment strategies.

Short Summary

A hard money lender provides short-term loans to real estate investors, typically using the property as collateral and providing flexible loan terms. A hard money lender is usually a private lender who is providing loans with less stringent approval criteria.

If you’re wondering how to become a hard money lender, you can begin with the following steps:

  1. Research the market – knowledge is key and tapping into the right audience is vital for a hard money lender
  2. Set up a business – choosing the right entity will have implications for tax and liability purposes
  3. Find financing – choose how you plan to fund the loans, whether that be yourself or using investors
  4. Implement efficient processes – providing fast loans and streamlined processes is necessary to be successful as a hard money lender
  5. Source clients – create an effective marketing plan, and network with professionals in the industry to find clients
  6. Develop a solid reputation – this is crucial for finding more clients and becoming well-known in the industry

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Step-by-Step Guide To Becoming A Hard Money Lender

Hard money lending can be a successful way to build wealth, however it hinges on your ability to secure funding. Hard money lenders provide short-term loans to real estate investors. They are typically private lenders who aren’t affiliated with any traditional financial institution. Hard money lenders use the property itself as collateral to back the loan.   

Wondering how to become a hard money lender? Becoming a successful hard money lender involves a combination of knowledge, network, and adaptability. However, it can generate a significant amount of passive income once the correct steps are taken to mitigate the risks.  

Step 1: Research the market

To thrive in the hard money lending industry, a deep understanding of the real estate market is crucial. As such, the first step to becoming a hard money lender requires getting to grips with the real estate market to uncover market trends, demand and potential risks. This means either the local or national real estate market, depending on where you plan to operate.

This information will impact your hard money lending in terms of the type of loans you provide, your loan approval criteria and your rates and terms. The trends in the market (eg: rising rental property demand) will help you decide which loans your business should focus on, in order to appeal to market demand and generate a profit.

Step 2: Set up a business

Once you’ve gotten familiar with the real estate market in the area or across the country, the next step is to set up a business. Choosing the right business entity is key to being able to operate. Many hard money lenders operate under an LLC (Limited Liability Corporation), which is well suited to this type of business because personal assets are protected using this structure.

Each state will require certain licenses and permits, so it’s also important to familiarize yourself with these so that you can make sure your business aligns with the laws and regulations required for operation.  

Setting up your hard money lending business requires a few key steps:

  • Securing the necessary insurance to protect your finances
  • Making the decision on how you’ll find funding, or if you’ll fund the business yourself
  • Sourcing an attorney who specializes in lending money and can make sure that the business remains compliant with the law
  • Deciding on how your loan servicing will work
  • Establish clear lending criteria by considering factors like loan-to-value ratios, borrower experience, and property types
  • Creating a risk mitigation strategy to assess potential borrowers and projects
Hard money lending

Step 3: Find financing

This step will depend on whether you’re planning on funding the hard money lending business yourself, or whether (like most people) you need to find investors to fund your capital. You’ll need to identify the sources of funding for a hard money lender, and raise capital from investors, establish lines of credit or use your own funds.

Diversifying your funding sources is a good way to maintain a higher level of stability in your funding. A hard money lender needs to provide fast funding, so this is one of the key considerations when choosing the method to obtain capital. Hard money loan closing is faster than traditional loan closing and to be competitive as a hard money lender, this needs to be facilitated.

Step 4: Implement efficient processes

Once you’ve secured funding, you’ll need to determine your loan processes and make sure that they’re as efficient as possible. This means using technology to help automate and streamline your lending process. Efficiency is a crucial element for any hard money lender, so this step should receive a large focus.

To make sure that your loan process is smooth and efficient, your lending criteria should be outlined upfront and the amount of paperwork that is required should be kept to a minimum. Using a data-driven approach is another way to create efficient processes that speed up the entire loan closing process.

Efficient processes essentially lead to faster loan closing, and happier clients who will be able to beat the competition for good real estate deals, in the dynamic real estate environment.

Setting up a business

Step 5: Source clients

Networking is one of the key elements to creating a successful hard money lending business.  Sourcing clients requires knowing where to find them, because there are many real estate investors who need access to funding, so it’s a case of finding them where they are looking. Successful hard money lenders will build a solid network of real estate agents, accountants, real estate industry professionals, and more, using online forums and other lending platforms.

Along with networking, creating an effective marketing plan is vital for sourcing clients so that those who are looking for funding can easily find it. This involves setting up a good website, implementing an effective marketing strategy that involves various types of marketing, and finding clients in the right places. This marketing strategy should include various branches, such as email marketing, online advertising and search engine optimization.  

Step 6: Develop a solid reputation

Creating a hard money lending business that has longevity involves developing and maintaining a good reputation for being a reliable hard money lender. This means you’ll need to provide exceptional service to your clients, be transparent and make sure that you can deliver on your promises.

Getting good reviews from clients is a great way to show other potential clients that you are a reliable hard money lender. Positive reviews and word of mouth can go a long way within the real estate industry to promote the quality of a hard money lender. Word spreads quickly when a business provides exceptional service, and if you have developed an extensive network in the real estate industry, you can use this to promote your positive feedback from clients.

As you explore these avenues, remember that each method comes with its own set of opportunities and challenges. It’s essential to align your choice with your financial goals, risk tolerance, and expertise in the real estate and lending landscape.

Other Ways To Lend Money To Real Estate Investors

There are various avenues to lend money to real estate investors, and for those who wish to consider another option, it’s a good idea to take a look at each alternative lending method and its advantages and drawbacks first. Let’s take a closer look at these methods, so that you can figure out if any of them may be suited to you.   

Hard money lending

Correspondent Lending

Correspondent lending involves originating and funding loans, however a larger financial institution underwrites them. This allows you to leverage the services of a larger institution while maintaining a connection with the borrower and still offering them a lending service. This type of lending allows you to provide the loans that real estate investors need, without having to take on the entire lending process and underwriting yourself.

For example, a hard money lender like New Silver has a Correspondent Program whereby other businesses can provide hard money loans through New Silver, but under their own branding. Correspondents will use a white label platform however New Silver will still underwrite the loan in the background. This allows correspondents to provide hard money loans to their clients, through New Silver’s platform, while New Silver takes on the loan process and servicing.

Become A Broker

Operating as a mortgage broker involves connecting borrowers with lenders, which means that you’ll be facilitating the loan application process by matching the investors with borrowers. One of the benefits of becoming a broker is that you’ll have the flexibility to work with multiple lending institutions. This means you can give your clients lending options, and you can earn commissions from multiple lenders.

Brokers can retain their independence and therefore create flexibility in how they run their business. Brokers also don’t need to be concerned with funding any real estate deals themselves, or finding investors, as they are simply facilitating the connection between borrowers and lenders.

Private Lending

Private money lending involves providing the funds yourself to real estate investors. With private money lending, private money lenders can have a direct connection with borrowers and build a relationship through trust. This will require thorough due diligence however, in order to make sure that the project will be profitable, and that the borrower can repay the private money loan, as the risk is higher for a private money lender.

The advantages to private money lending are that the private money lender can make their own decisions about the loans, so private money loan terms can be flexible and these loans can be adapted to each borrower’s specific circumstances. Private money lending has the potential for higher returns, as interest rates can be put up.


Real estate crowdfunding platforms allow borrowers to get funding for projects from a number of investors who pool their capital. There are many online platforms that provide crowdfunding solutions for real estate investors, and this allows for individuals to invest in real estate options that they wouldn’t have been able to otherwise.

The benefits of this form of investing are that the minimum investment amount is lower and investors can diversify across multiple projects. However, due to the investment split, each investor may not receive a high return, and there is limited control over the management of the project as this is up to the borrower.  

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