Private lending glossary

A hard money loan is a short-term, asset-based loan secured by real property rather than the borrower’s creditworthiness. Hard money lenders underwrite primarily against the collateral — the property itself — making these loans accessible to investors who move faster than bank timelines allow, including fix-and-flip buyers, bridge borrowers, and developers who need to close in days rather than weeks.

According to the American Association of Private Lenders (AAPL), hard money loans typically carry interest rates of 8–15% per annum and loan terms of 6–24 months, with origination fees of 2–5 points. Approval timelines can be as short as 3–7 business days — roughly ten times faster than conventional commercial mortgages.

Most hard money lenders cap leverage at 65–75% LTV on stabilized property or 65–70% of ARV on properties requiring rehabilitation. Find verified hard money lenders in the directory →

Source: AAPL Industry Report 2024

A bridge loan is short-term financing designed to “bridge” the gap between two financial events — typically between the purchase of a new property and the sale of an existing one, or between acquisition and a permanent loan. Bridge loans are common in commercial real estate where investors need quick capital to stabilize a property before refinancing into agency or permanent debt.

According to the Mortgage Bankers Association, bridge loan originations in commercial real estate totaled over $65 billion in 2024, representing approximately 22% of all non-agency commercial loan volume. Terms typically run 6–36 months at rates of 7–12% depending on leverage and property type.

Most bridge lenders require a clear exit strategy — either a refinance into permanent debt or a sale — before committing capital. Find verified bridge lenders →

Source: MBA Commercial/Multifamily Finance Databook 2024

A DSCR loan (Debt Service Coverage Ratio loan) qualifies the borrower based on the income-generating capacity of the rental property itself, not the borrower’s personal income. The debt service coverage ratio — calculated by dividing the property’s net operating income (NOI) by total annual debt service — must meet a minimum threshold set by the lender, typically 1.10–1.25x.

DSCR loans now account for approximately 18% of all single-family investor purchases, up from under 5% in 2019, according to ATTOM Data Solutions. Self-employed investors and those with complex income structures drive adoption, as DSCR eliminates the need for tax returns and W-2 documentation.

A DSCR below 1.0x means the property does not generate enough income to cover the debt payment. Lenders may still offer loans below 1.0x DSCR at lower leverage and with additional reserves. Find verified DSCR lenders →

Source: ATTOM Data Solutions Investor Purchase Report Q3 2024

The loan-to-value ratio (LTV) expresses the loan amount as a percentage of the property’s appraised value. It is the primary risk metric used by private lenders to determine how much to lend: a 70% LTV on a $500,000 property means a loan of $350,000, leaving a 30% equity cushion that protects the lender in the event of default.

According to AAPL member surveys, the median maximum LTV for hard money lenders on residential investment properties is 70% — versus 75–80% for conventional investment property loans. Lower LTV reduces lender risk but increases the equity required from the borrower.

LTV interacts with other ratios: a lender may combine a 70% LTV cap with a 65% ARV cap and an 85% LTC cap. The most restrictive constraint governs the actual loan amount. Borrowers should model all three metrics before submitting an offer.

Source: AAPL Private Lending Industry Survey 2024

After Repair Value (ARV) is the estimated market value of a property after all planned renovations are complete. Fix-and-flip lenders use ARV as the primary underwriting basis rather than current as-is value, because the collateral’s value at the end of the project is what secures the lender if the borrower defaults during construction.

ARV is determined through a prospective “as-completed” appraisal conducted by a licensed appraiser. According to LenderLedger data from verified fix-and-flip lenders in our directory, approximately 78% of private lenders require a full appraisal for loans over $500,000; a broker price opinion (BPO) may be accepted below that threshold.

Private lenders typically cap loans at 65–70% of ARV. On a property with a $300,000 ARV, this translates to a maximum loan of $195,000–$210,000. Find verified fix-and-flip lenders →

Source: LenderLedger Verified Lender Data 2025 · AAPL

An origination fee is a one-time charge assessed by the lender at closing to cover the cost of evaluating, processing, and funding the loan. In private lending, origination fees are typically expressed as a percentage of the loan amount and are often used interchangeably with “points.”

According to AAPL’s 2024 industry survey, the median origination fee charged by U.S. private lenders is 2 points (2%), with a range of 1–5 points depending on loan complexity, borrower experience, and market conditions. On a $500,000 loan, a 2-point fee equals $10,000, typically paid at closing.

Borrowers should compare origination fees alongside interest rates when evaluating total cost of capital — a lower rate with high points can exceed the total cost of a higher rate with minimal points on a short-hold deal.

Source: AAPL Private Lending Industry Survey 2024

In real estate lending, “points” is shorthand for loan origination fees, where one point equals 1% of the loan amount. A lender charging 2 points on a $400,000 loan collects $8,000 at closing. In private lending, the term almost universally refers to origination fees rather than discount points (prepaid interest used to reduce rates).

The relationship between points and rate reflects the lender’s total yield on the investment. According to AAPL, the average total cost of private capital (rate plus annualized points) in the U.S. in 2024 was approximately 15–18% annually for 12-month loans.

Borrowers should calculate the annual percentage rate (APR) including all points to make accurate comparisons across loan offers. A seemingly lower interest rate with high points can be significantly more expensive than a higher rate with minimal points on a short hold period.

Source: AAPL Private Lending Industry Survey 2024

A draw schedule is a predetermined disbursement plan for a construction or rehabilitation loan, under which the lender releases funds in stages as specific milestones are completed. Rather than advancing the full loan amount at closing, the lender holds back construction funds and releases “draws” after an inspector verifies completed work.

Draw schedules protect lenders against contractor abandonment and cost overruns. A typical rehab project has 3–5 draws. According to LenderLedger data from verified construction lenders, inspection turnaround times range from 24 hours (in-house inspectors) to 5–7 business days (third-party inspection services).

Borrowers should negotiate draw frequency, inspection fees, and holdback percentages before closing. Slow draw releases can stall construction and inflate carrying costs. Find verified construction lenders →

Source: LenderLedger Verified Lender Data 2025

A recourse loan permits the lender to pursue the borrower’s personal assets — bank accounts, other real estate, wages — if the borrower defaults and the collateral sale does not cover the outstanding loan balance. Most private real estate loans in the United States are full-recourse, meaning the lender retains the right to pursue a deficiency judgment after foreclosure.

According to the Mortgage Bankers Association, more than 85% of private lender originated loans under $5 million include a full personal guarantee, making them recourse obligations.

Borrowers signing recourse documents should understand that deficiency judgments can follow them for years after a foreclosure and affect personal credit and future borrowing capacity. In community property states, a personal guarantee may expose a spouse’s assets to collection.

Source: MBA Commercial/Multifamily Annual Report

A non-recourse loan limits the lender’s remedy upon default to the collateral only. If the property sells at foreclosure for less than the outstanding balance, the lender absorbs the deficiency and cannot pursue the borrower’s personal assets.

Non-recourse financing commands a premium: rates are typically 0.5–1.5 percentage points higher than recourse equivalents. According to CBRE Capital Markets data, non-recourse terms are standard in CMBS and most institutional bridge lending but represent fewer than 20% of private lender originated loans under $2 million.

Non-recourse loans often include “bad boy” carve-outs — specific actions by the borrower (fraud, misrepresentation, voluntary bankruptcy) that convert the loan to full recourse. Borrowers should review carve-out clauses carefully before closing.

Source: CBRE Capital Markets Lending Survey 2024

A private lender is any individual, company, or fund that lends money secured by real estate outside the federally regulated banking system. Unlike banks, private lenders are not required to hold a federal banking charter and operate under state-by-state licensing rules that vary significantly across jurisdictions.

The U.S. private lending market comprised 13,631 active lenders through October 2025, originating approximately $125.6 billion in loans — an 11% year-over-year increase in volume, according to Forecasa.

The AAPL warns that no universal “private lender license” exists, making borrowers vulnerable to impersonators. Due diligence should include verifying state licenses, AAPL or NPLA membership, and independently verified deal reviews. Find verified private lenders in the LendLedger directory →

Source: Forecasa Private Lending Market Overview 2025 · AAPL

A fix-and-flip loan is a short-term bridge or hard money loan designed for real estate investors who purchase undervalued properties, renovate them, and resell for a profit. The loan typically covers both acquisition and rehabilitation costs in a single closing.

The U.S. fix-and-flip market completed approximately 315,000 flips in 2024, generating a gross median profit of $73,500 per transaction, according to ATTOM Data Solutions. Fix-and-flip loans have 6–18 month terms and are structured as interest-only during the renovation period, with full principal due upon sale.

Experienced flippers with a verified track record of completed projects typically receive better advance rates and lower fees — one reason maintaining a deal-verified lender profile on a platform like LendLedger directly affects cost of capital. Find verified fix-and-flip lenders →

Source: ATTOM Fix-and-Flip Market Report Q4 2024

A construction loan is short-term financing used to fund the building or substantial renovation of real property, with funds disbursed in stages as construction milestones are reached. Unlike a standard mortgage, a construction loan does not advance the full amount at closing.

Private construction lending grew 23% year-over-year in 2024 as bank construction lending contracted under tightening CRE concentration limits, according to MBA data. Private construction loans typically have 12–24 month terms and interest rates of 9–13%, with loan amounts based on LTC or LTARV ratios.

There are two primary types: renovation/rehab loans (existing structures) and ground-up construction loans (new builds). Ground-up loans carry higher risk and typically require more equity and borrower track record documentation. Find verified construction lenders →

Source: MBA Builder Finance Survey 2024

A ground-up construction loan finances the complete development of a new building on vacant land or after demolition of an existing structure. It is the highest-risk product in private real estate lending because both construction risk (cost overruns, delays) and market risk (will the completed product sell at projected value?) are borne in a single loan.

Private lenders generally advance 60–75% of total project costs (LTC) for ground-up construction. According to LenderLedger data from verified construction lenders, first-time ground-up borrowers typically face 5–10% lower LTC advances than borrowers with two or more completed ground-up projects.

Interest rates on ground-up loans run 1–3 points higher than comparable rehab loans. Borrowers who maintain a verified deal history can demonstrate track record to new lenders and potentially improve advance rates. Find verified ground-up construction lenders →

Source: LenderLedger Verified Lender Data 2025

A value-add property is a real estate asset where there is identifiable opportunity to increase income, reduce expenses, or improve asset quality through active management, renovation, or repositioning. Value-add investments sit between core-plus (stabilized assets needing modest improvement) and opportunistic (major repositioning) on the risk-return spectrum.

Value-add strategies account for approximately 35% of private equity real estate fund strategies globally, making it the most common investment category, according to Preqin’s 2024 Private Real Estate Report.

In private lending, value-add assets often serve as collateral for bridge loans, where lenders underwrite against the stabilized (post-value-add) value rather than the current as-is value. Lenders typically require a detailed business plan, budget, and timeline before committing capital.

Source: Preqin Private Real Estate Report 2024

The loan-to-cost ratio (LTC) expresses the loan amount as a percentage of total project cost — including acquisition price, hard construction costs, soft costs (permits, architecture, engineering), and carrying costs. LTC is the primary underwriting metric for construction and rehab loans.

Private lenders in the construction space typically advance 75–90% LTC on rehab projects and 60–80% LTC on ground-up construction. According to AAPL member surveys, the median LTC for experienced rehab borrowers was 82% in 2024, declining to 72% for first-time projects.

LTC and LTV (loan-to-value) are often evaluated simultaneously. The binding constraint — whichever produces the lower loan amount — governs the actual advance. Borrowers should model both metrics when underwriting a project to avoid funding surprises at closing.

Source: AAPL Private Lending Industry Survey 2024

Loan-to-after-repair-value (LTARV) is the loan amount expressed as a percentage of a property’s projected value once renovations are complete. LTARV is used alongside LTV and LTC to establish the maximum advance for fix-and-flip and rehabilitation loans, and is typically the most restrictive constraint for high value-add projects.

The standard industry maximum for LTARV is 65–70%. According to LenderLedger data across verified lenders, the median LTARV cap offered to borrowers with 5+ completed deals is 70%, while first-time borrowers average 63%.

LTARV protects lenders against overestimated renovation scopes. Accurate ARV estimation is the most important skill a fix-and-flip borrower can develop — a low appraisal reduces the lender’s advance and may require the borrower to inject additional equity.

Source: LenderLedger Verified Lender Data 2025

Net operating income (NOI) is a property’s total revenue minus all operating expenses, calculated before debt service, income taxes, and capital expenditures. NOI measures how much income the property generates from operations, independent of financing structure.

Typical operating expenses included in NOI calculations include property management (8–12% of gross rents), insurance, property taxes, maintenance, and utilities. According to CBRE’s 2024 market data, the average stabilized multifamily NOI margin in primary U.S. markets was 62% of effective gross income.

Private lenders use NOI to calculate DSCR (NOI ÷ annual debt service) and debt yield (NOI ÷ loan amount) — the two primary metrics for stabilized income property loans. An accurate NOI projection that accounts for realistic vacancy and expense ratios is critical to getting the loan advance a property can support.

Source: CBRE U.S. Real Estate Market Outlook 2024

Cap rate (capitalization rate) is the ratio of a property’s NOI to its current market value or purchase price. It estimates the return an investor would receive if they purchased the property all-cash. A higher cap rate indicates more income relative to price; a lower cap rate reflects less income per dollar (generally reflecting lower risk or higher-quality location).

Cap rates vary significantly by property type and geography. According to CBRE’s Q4 2024 data: industrial averaged 5.5%, multifamily 5.3%, retail 7.1%, and office 8.4%.

In private lending, cap rates are used to value stabilized properties serving as collateral for bridge and DSCR loans. Shifts in prevailing cap rates directly affect collateral values and LTV covenants in many private loan agreements.

Source: CBRE Cap Rate Survey Q4 2024

Debt yield is a lender-centric underwriting metric that measures the unleveraged return a lender would receive if they took possession of the collateral through foreclosure. It is calculated by dividing the property’s NOI by the outstanding loan amount. (Debt Yield = NOI ÷ Loan Amount)

Unlike LTV, debt yield is immune to appraisal manipulation because it uses actual income data rather than estimated value. According to CBRE Capital Markets data, institutional lenders require a minimum debt yield of 8–10% on stabilized commercial properties.

A property generating $120,000 in NOI supporting a $1,200,000 loan has a debt yield of 10%. Debt yield is particularly relevant in high-LTV bridge loan situations where appraised values may reflect anticipated improvements not yet reflected in income.

Source: CBRE Capital Markets Underwriting Report 2024

A promissory note is a legally binding financial instrument in which the borrower unconditionally promises to repay a specified sum of money under defined terms, including the interest rate, repayment schedule, maturity date, and consequences of default. The promissory note creates the borrower’s personal obligation to repay.

A borrower who signs a promissory note and personally guarantees a loan can be held liable even after foreclosure sells the collateral — the note survives the loss of the property. According to CFPB guidance, promissory notes in residential real estate must comply with federal Truth in Lending Act (TILA) disclosure requirements.

Private loan promissory notes often include default interest rates (5–10 points above the note rate), extension options with associated fees, and acceleration clauses. Borrowers should review the note closely before closing, not just the term sheet.

Source: CFPB Mortgage Key Terms Guide

A deed of trust is the security instrument used in approximately 30 U.S. states to pledge real property as collateral for a loan. Unlike a mortgage, a deed of trust involves three parties: the trustor (borrower), the beneficiary (lender), and a neutral trustee who holds title until the loan is repaid.

The most important practical difference is foreclosure speed. States using deeds of trust typically allow non-judicial foreclosure, completing the process in as little as 21 days (Texas) to 120 days (California). According to AAPL data, states with non-judicial foreclosure attract significantly more private lending activity, as the faster timeline reduces lender risk and enables more aggressive lending terms.

Borrowers in deed of trust states should understand that default carries faster consequences than in mortgage states. Understanding your state’s foreclosure process before signing is essential.

Source: AAPL State Lending Law Resource 2024

A personal guarantee is a contractual commitment by an individual to repay a business loan if the primary borrower (typically an LLC or corporation) fails to do so. In private real estate lending, almost all loans to single-asset entities require a personal guarantee from the controlling principal.

Personal guarantees are among the most significant documents a real estate investor signs. Once executed, the guarantor’s personal assets become available to satisfy the debt in default. According to the MBA, personal guarantees accompany more than 85% of private loans under $5 million originated in the United States.

Types of personal guarantees include full, limited (capped at a specific amount), completion (guarantees only construction will be finished), and “bad boy” (triggered only by specific acts of misconduct). Understanding which type is in the loan documents before closing is essential.

Source: MBA Commercial/Multifamily Finance Glossary

Cross-collateralization is a lending arrangement in which a single lender secures multiple loans with the same collateral, or uses the equity in one property as additional security for a loan on a different property. Private lenders frequently offer cross-collateralized portfolio programs that allow borrowers to access higher leverage by pledging multiple properties.

According to LenderLedger data, approximately 23% of portfolio lendersin our directory offer cross-collateralized bridge programs. These programs typically allow higher aggregate LTV because the lender’s risk is diversified across multiple assets.

The significant risk to borrowers is the “blanket lien” — if one property in the portfolio defaults, the lender may foreclose on all properties in the portfolio. Borrowers should ensure they have clear exit strategies for each property before entering a cross-collateralized facility.

Source: LenderLedger Verified Lender Data 2025

A prepayment penalty is a contractual fee charged when a borrower repays a loan before its scheduled maturity date. In private lending, prepayment penalties compensate lenders for the loss of anticipated interest income when a borrower exits early.

Common structures include step-down penalties (e.g., 3% in year 1, 2% in year 2), fixed lock-out periods, and minimum interest provisions. According to AAPL data, approximately 45% of hard money loans include some form of prepayment restriction, most commonly a minimum interest period of 3 months.

Short-term fix-and-flip investors should specifically negotiate for no prepayment penalty or short lock-out periods, as renovation timelines are unpredictable and early repayment is common. Accepting a prepayment penalty for a lower rate is often a false economy on short-hold deals.

Source: AAPL Private Lending Industry Survey 2024

An interest reserve is a portion of loan proceeds set aside at closing to make monthly interest payments on behalf of the borrower during a construction or stabilization period. Rather than requiring the borrower to make cash payments monthly while the property is under construction, the lender advances additional proceeds into a reserve account that automatically satisfies each interest payment.

Interest reserves are standard on ground-up construction loans and common on heavy rehabilitation projects. According to LenderLedger data from verified construction lenders, the median interest reserve funded in 2025 was approximately 8 months of interest, reflecting typical construction timelines.

An interest reserve is still borrowed money — it adds to the total loan balance. Extended delays that exhaust the reserve before project completion are one of the most common causes of construction loan default.

Source: LenderLedger Verified Lender Data 2025

A balloon payment is a large lump-sum payment due at the end of a loan’s term representing the outstanding principal balance. In private lending, virtually all bridge and hard money loans have balloon payments — the borrower makes interest-only monthly payments during the loan term and must repay the entire remaining principal at maturity.

According to AAPL data, more than 95% of private real estate loans are structured with balloon payments rather than fully amortizing schedules. The balloon structure minimizes monthly cash obligations during the investment period and concentrates the capital repayment at the exit event (sale or refinance).

The critical risk is refinance risk — the borrower must have a clear exit executed before the maturity date. Requesting extensions before maturity rather than after default preserves the most negotiating leverage with the lender.

Source: AAPL Private Lending Best Practices Guide

Amortization is the gradual repayment of a loan principal over its term through scheduled periodic payments. A fully amortizing loan — where each payment includes both interest and principal — results in the loan balance declining to zero by the final payment. A typical 30-year residential mortgage is fully amortizing; a typical 12-month hard money loan is not.

Most private real estate loans are interest-only (IO) — monthly payments cover only interest accrued, with full principal due as a balloon at maturity. According to the MBA, interest-only terms are present in approximately 68% of all private (non-bank) commercial real estate loans.

Understanding whether a private loan is IO, partially amortizing, or fully amortizing directly affects monthly payment obligations and total interest cost over the hold period. Partial amortization (e.g., 25-year schedule, 3-year term with balloon) is sometimes offered on stabilized properties.

Source: MBA Commercial Real Estate Finance Survey 2024

Mezzanine financing is a hybrid debt/equity instrument that sits between senior secured debt and equity in the capital stack. Unlike senior debt secured by a first mortgage lien on the property, mezzanine debt is secured by a pledge of the equity interest in the property-owning entity — typically the LLC membership interests rather than a mortgage.

Mezzanine financing fills the gap between the maximum leverage available from a senior lender and the equity the borrower is willing to commit. According to CBRE Capital Markets data, mezzanine rates ranged from 12–20% in 2024, reflecting the subordinate position and higher default risk.

Mezzanine lenders have the right to cure defaults on the senior loan and can “step into” the equity if the borrower defaults through a UCC foreclosure — which can complete in as little as 10–30 days in many states, far faster than a real property foreclosure.

Source: CBRE Capital Markets Mezzanine Survey 2024

Preferred equity is an equity investment structure that gives the preferred equity investor priority distribution rights over common equity holders, while sitting subordinate to all debt in the capital stack. Preferred equity investors receive a fixed preferred return (typically 8–15%) before the common equity sponsor receives any distributions.

Preferred equity represents an ownership position in the property entity rather than a debt obligation. According to Preqin’s 2024 Private Real Estate Report, preferred equity structures represented approximately 18% of private real estate debt fund strategies globally.

The realization event — sale or refinance — typically returns preferred equity capital before any common equity profits are distributed. In waterfall structures, preferred equity may also participate in profits above the preferred return through negotiated profit-sharing provisions.

Source: Preqin Private Real Estate Report 2024

In real estate lending, escrow refers to a neutral third-party account held by a title company, attorney, or escrow company that temporarily holds funds and documents during the closing process until all conditions are met. Funds are released only when both buyer and seller satisfy the agreed conditions.

Escrow also refers to an ongoing impound account maintained by lenders after closing to hold monthly reserves for property taxes and insurance. These are less common in private lending than in residential mortgages. According to the CFPB, escrow and wire fraud related to real estate closings resulted in over $446 million in losses in 2023.

Borrowers should always verify wire instructions directly with the title company by phone — never via email — before transferring funds. Wire fraud is one of the fastest-growing financial crimes targeting real estate transactions.

Source: CFPB Real Estate Escrow Guide · FBI IC3 2023 Report

Title insurance protects buyers and lenders against financial loss from defects in a property’s title — claims arising from prior ownership, unpaid liens, errors in public records, fraud, or undisclosed heirs. In private real estate lending, lenders universally require a lender’s title insurance policy (ALTA) as a condition of funding.

Unlike most insurance, title insurance covers risks from past events rather than future occurrences. The one-time premium is paid at closing. According to the American Land Title Association, title claims are filed on approximately 1 in 4 policies, generating payouts that average $84,000 per claim.

Private lenders typically require extended coverage ALTA policies covering additional risks including survey coverage, mechanic’s liens, and zoning issues. Borrowers who purchase investment properties without title insurance to save on closing costs face potentially catastrophic exposure to title challenges that can extinguish their equity.

Source: American Land Title Association Industry Statistics 2024

A real estate appraisal is a professional opinion of a property’s market value, conducted by a licensed or certified appraiser, used by lenders to determine the collateral value supporting the loan. Appraisals must comply with the Uniform Standards of Professional Appraisal Practice (USPAP).

According to LenderLedger data, 72% of private lenders require full USPAP appraisalsfor investment property loans over $250,000. For rehabilitation loans, lenders typically order both “as-is” and “as-completed” appraisals simultaneously — the as-is value establishes the acquisition LTV, and the as-completed value establishes the maximum LTARV.

Private lenders also use broker price opinions (BPOs) for smaller loans and automated valuation models (AVMs) in data-rich markets. A low appraisal that reduces the lender’s advance can create funding gaps requiring the borrower to inject additional equity or renegotiate.

Source: Appraisal Foundation USPAP Standards · LenderLedger Data 2025

An extension fee is a charge paid by the borrower to extend a private loan past its original maturity date. Because most private loans have short terms (6–24 months), extensions are common when the borrower’s exit strategy (sale or refinance) is delayed. Extension fees compensate the lender for added risk and administrative cost.

Typical private lender extension terms include a fee of 0.5–1.5% of the outstanding loan balance per extension period. According to LenderLedger data from verified lenders, approximately 31% of private real estate loans required at least one extension in 2024, reflecting extended renovation timelines and a challenging refinance market.

Borrowers should negotiate extension options and fees before loan origination — not at maturity. Requesting an extension before the loan matures preserves maximum leverage in negotiations with the lender. Find verified private lenders →

Source: LenderLedger Verified Lender Data 2025