Private money lending has become one of the most important financing tools in commercial real estate. Whether you are acquiring a value-add multifamily property, funding a ground-up development, or closing on a deal that traditional banks will not touch, private money lenders offer the speed, flexibility, and creativity that institutional financing often lacks. In this guide, we break down everything borrowers need to know about private money commercial real estate financing, from how it works to what it costs and when it makes the most sense.
Need Financing for This Project?
Stop searching bank by bank. Get matched with 6,000+ vetted lenders competing for your deal.
What is private money lending in commercial real estate?
Private money lending refers to loans funded by individual investors, family offices, or small private groups rather than banks, credit unions, or government-backed programs. In commercial real estate, these lenders provide capital secured by the property itself, making lending decisions based primarily on the asset's value and the deal's potential rather than the borrower's personal credit profile.
Unlike conventional commercial mortgages that follow rigid underwriting guidelines, private money loans are governed by terms negotiated directly between the borrower and the lender. This means everything from the interest rate to the repayment schedule can be customized to fit the specific deal.
Private money lending sits in a unique space within the capital stack. It fills the gap between traditional bank financing, which is slow and heavily regulated, and hard money lending, which is more institutionalized and asset-focused. Private money lenders often have a personal or professional relationship with the borrower, which can lead to more favorable and flexible terms.
According to the Federal Reserve's January 2026 policy update, the federal funds rate held steady at 3.50% to 3.75% after three consecutive cuts in late 2025, bringing the prime rate to 6.75%. This environment has made private lending increasingly attractive as borrowers look for alternatives to tightening bank standards.
Key characteristics of private money lending include:
- Relationship-driven: Terms are often negotiated based on trust and track record between borrower and lender
- Asset-focused underwriting: The property's value and income potential matter more than personal credit scores
- Flexible structures: Loan terms, repayment schedules, and even collateral requirements can be customized
- Faster closings: Most private money loans close in 10 to 21 days, compared to 45 to 90 days for bank loans
- Broader property types: Private lenders finance deal types that banks avoid, including distressed assets, land, and transitional properties
How does private money lending work for CRE deals?
The private money lending process differs significantly from traditional bank financing. Understanding how it works helps borrowers prepare the right documentation and set realistic expectations for timelines and costs.
Step 1: Identify the opportunity and the lender. Most private money relationships begin through networking, referrals, or working with a commercial mortgage broker. Borrowers present the deal to the lender, including the property details, purchase price, renovation budget (if applicable), and the planned exit strategy.
Step 2: Submit the loan application. While private lenders require less paperwork than banks, they still need key documents. These typically include a property appraisal or broker opinion of value, a personal financial statement, a project pro forma showing expected income and expenses, and details on the borrower's experience with similar projects.
Step 3: Underwriting and due diligence. The lender evaluates the deal based on the loan-to-value (LTV) ratio, the property's condition, the local market, and the borrower's exit strategy. Unlike banks that run credit through automated systems, private lenders often make underwriting decisions within days.
Step 4: Term negotiation and closing. Once the lender approves the deal, both parties negotiate the final terms. This includes the interest rate, loan term, origination fees, prepayment penalties, and any special conditions. Closing can happen in as few as 7 to 14 days with clear title and completed appraisal.
Step 5: Repayment or refinance. Most private money loans are structured as interest-only with a balloon payment at maturity. Borrowers typically repay the loan by refinancing into a permanent commercial mortgage, selling the property, or using proceeds from the completed project.
Private money lenders typically fund between 60% and 75% of a property's value, though some will go up to 80% for experienced borrowers with strong track records. The remaining equity comes from the borrower's own capital, joint venture partners, or mezzanine financing.
What is the difference between private money and hard money?
This is one of the most common questions in commercial real estate financing, and the answer matters because choosing the wrong product can cost you thousands in unnecessary fees or leave you without the flexibility your deal requires.
Source of capital. Private money comes from individuals, family offices, or small private investment groups. Hard money loans come from specialized lending companies that pool investor capital or use institutional credit lines. This distinction affects everything from how decisions are made to how flexible the terms can be.
Relationship vs. institution. Private money lending is inherently relationship-driven. A private lender might be a retired real estate investor, a high-net-worth individual, or even a friend or family member. Hard money lenders are businesses with standardized loan programs, rate sheets, and underwriting criteria.
Flexibility of terms. Because private money lenders are individuals making personal investment decisions, they can offer highly customized terms. They might agree to a lower interest rate in exchange for equity participation, defer payments during a renovation period, or structure creative repayment schedules. Hard money lenders operate within set guidelines and have less room to negotiate.
Regulation and compliance. Hard money lending is a regulated business. These lenders must comply with state and federal lending laws, maintain proper licensing, and follow standardized disclosure requirements. Private money lending, while still subject to securities laws and usury limits, operates with less regulatory oversight.
Speed and scale. Hard money lenders can often close faster because they have established processes and readily available capital. They can also handle larger loan amounts. Private money deals may take slightly longer if the lender needs time to move funds, and individual lenders may have lower lending limits.
For a deeper dive into how hard money compares with other short-term financing options, read our guide on bridge loans vs. hard money: which is right for your deal.
What are the interest rates for private money commercial loans?
Interest rates on private money commercial loans vary widely depending on the deal structure, borrower experience, property type, and current market conditions. Understanding the rate landscape helps borrowers evaluate whether the cost of private capital makes sense for their specific situation.
As of early 2026, here is the general rate environment for private money commercial loans:
Rate factors that matter most:
- Loan-to-value ratio: Lower LTV means lower risk for the lender, which translates to better rates. A 60% LTV deal will typically command rates 1% to 2% lower than a 75% LTV deal.
- Property type and condition: Stabilized, income-producing properties get better rates than vacant, distressed, or speculative assets.
- Borrower experience: Repeat borrowers with successful track records often negotiate rates 0.5% to 1.5% below what first-time borrowers pay.
- Loan term: Shorter terms (6 to 12 months) tend to carry higher annualized rates, while longer terms (2 to 5 years) may offer lower rates with more total interest paid over time.
- Market conditions: With the prime rate at 6.75% as of January 2026, private money rates have moderated from their 2023 peaks but remain above pre-pandemic levels.
Beyond the interest rate, borrowers should account for additional costs:
- Origination fees: Typically 1% to 3% of the loan amount, charged at closing
- Processing and underwriting fees: $1,500 to $5,000 depending on deal complexity
- Appraisal costs: $3,000 to $10,000 for commercial properties
- Legal and closing costs: $2,000 to $8,000
- Exit or prepayment fees: Some lenders charge 0.5% to 2% for early repayment
To estimate your monthly payments on a private money commercial loan, use our commercial mortgage calculator.
Ready to explore private money financing for your next commercial deal? Contact our lending team to discuss your project and get a custom rate quote.
How do you find private money lenders for commercial real estate?
Finding the right private money lender is as much about building relationships as it is about shopping for rates. The best private lending relationships develop over time and often lead to repeat deals with increasingly favorable terms.
1. Commercial mortgage brokers. Working with an experienced commercial mortgage broker is the most efficient way to access private capital. Brokers maintain relationships with dozens of private lenders and can match your deal with the right funding source. They understand which lenders specialize in specific property types, geographic markets, and deal sizes.
2. Real estate investment groups and associations. Local and national real estate investment associations (REIAs) bring together investors, developers, and lenders. Attending meetings, conferences, and networking events puts you in direct contact with individuals who have capital to deploy.
3. Online lending platforms. Several online platforms now connect commercial borrowers with private lenders. These marketplaces allow you to submit your deal details and receive offers from multiple lenders, streamlining the comparison process.
4. Professional referrals. Attorneys, CPAs, financial advisors, and other professionals who work with high-net-worth individuals often know clients looking to invest in real estate-backed loans. Ask your professional network for introductions.
5. Family offices and wealth managers. Family offices managing multi-generational wealth frequently allocate capital to private real estate lending. These lenders tend to offer longer terms and more patient capital than other private sources.
6. Existing relationships. Some of the best private money deals come from people you already know: business partners, former colleagues, or fellow investors who have capital and want real estate-backed returns without the headaches of direct ownership.
When evaluating a private money lender, ask these critical questions:
- What is their track record of funding deals similar to yours?
- Can they provide proof of funds or a pre-approval letter?
- What are the total costs, including all fees, not just the interest rate?
- What happens if you need an extension on the loan term?
- Do they have experience with your specific property type and market?
When does private money lending make sense over bank financing?
Private money is not the right choice for every deal. It costs more than bank financing, and the shorter terms create refinance risk. But in many situations, the speed, flexibility, and certainty of private capital create value that far exceeds the higher cost.
Here are the scenarios where private money lending clearly outperforms bank financing:
Time-sensitive acquisitions. When a motivated seller or auction deadline gives you 14 to 21 days to close, banks simply cannot move fast enough. Private lenders can fund within this timeframe, allowing you to capture deals that would otherwise go to all-cash buyers.
Value-add and transitional properties. Banks want stabilized, income-producing assets. If you are buying a property that needs renovation, lease-up, or repositioning, private money bridges the gap between acquisition and stabilization. Once the property is performing, you refinance into a permanent loan at a lower rate.
Credit or documentation challenges. Recent bankruptcies, tax liens, self-employment income that is hard to document, or foreign national status can disqualify you from bank financing. Private lenders evaluate the deal on its merits rather than running your application through a credit scoring algorithm.
Complex deal structures. Joint ventures, partial interest acquisitions, portfolio purchases, and entity restructuring deals require creative financing that banks cannot provide. Private lenders can structure loans around the unique needs of complex transactions.
Bridge to permanent financing. Many borrowers use private money as a bridge loan to acquire and improve a property before refinancing into long-term, lower-cost permanent debt. This strategy works particularly well for fix-and-flip projects and value-add multifamily investments.
Emerging or non-traditional property types. Cannabis facilities, co-working spaces, short-term rental portfolios, and other non-traditional assets often fall outside bank lending guidelines. Private lenders evaluate these properties on their income potential and market demand.
Want to find out if private money is the right fit for your commercial real estate project? Speak with a Clearhouse lending advisor today to review your options.
What should you know before applying for a private money loan?
Before approaching a private money lender, preparation is key. Having the right documents and a clear strategy dramatically increases your chances of approval and positions you to negotiate the best possible terms.
Build your deal package. Every private lender wants to see a clear, professional presentation of the opportunity. This should include the property address, photos, and description, a purchase price breakdown, a renovation or improvement budget (if applicable), a detailed pro forma showing projected income and expenses, your planned exit strategy with a realistic timeline, and your track record with similar projects.
Know your numbers. Private lenders focus on the deal's financials. Be prepared to discuss the property's current and projected net operating income, the debt service coverage ratio (DSCR) at stabilization, comparable sales and rental rates in the market, and the total cost of the project versus the expected return.
Have an exit strategy. This is the single most important factor for private money lenders. They want to know exactly how they will be repaid. Common exit strategies include refinancing into permanent financing once the property stabilizes, selling the property after renovation or lease-up, and using operating cash flow to pay down the loan over time.
Negotiate wisely. Everything is negotiable in a private money deal. Focus on total cost rather than just the interest rate, as a loan with a 10% rate and 1 point may be cheaper than a 9% rate with 3 points on a short-term deal. Ask about extension options, prepayment flexibility, and whether the lender will fund future draws for renovation costs.
Frequently asked questions about private money commercial real estate lending
What is the minimum loan amount for private money commercial loans? Most private money lenders have minimums ranging from $100,000 to $500,000 for commercial properties. Individual lenders may go lower, while family offices and larger private funds typically start at $1 million or more.
Can you get a private money loan with bad credit? Yes. Private money lenders focus primarily on the property's value and the deal's potential rather than the borrower's credit score. While a strong credit profile helps you negotiate better terms, many private lenders will fund deals for borrowers with credit scores below 600 if the property and exit strategy are solid.
How long does it take to close a private money commercial loan? Most private money loans close in 7 to 21 days. Deals with clear title, a completed appraisal, and an experienced borrower can close in as few as 5 to 7 business days. Complex deals or those requiring environmental assessments may take 3 to 4 weeks.
What types of commercial properties can you finance with private money? Private money lenders finance virtually all commercial property types, including multifamily, office, retail, industrial, mixed-use, hospitality, self-storage, and specialty assets. They are particularly useful for property types that banks consider too risky or non-conforming.
Do private money lenders require personal guarantees? Most private money lenders do require a personal guarantee or "recourse" provision, especially for newer borrowers. Some lenders offer non-recourse options for experienced investors with lower LTV deals (typically below 60%), but these often carry higher rates.
What happens if you cannot repay the private money loan on time? This depends on the lender and the loan agreement. Many private lenders offer extension options (usually 3 to 6 months) for an additional fee of 0.5% to 1% of the loan balance. If no extension is possible, the lender may begin foreclosure proceedings to recover their capital through the property.
Is private money lending legal? Yes. Private money lending is legal in all 50 states, though it is subject to state usury laws, securities regulations, and consumer protection requirements. Both borrowers and lenders should work with experienced real estate attorneys to ensure compliance with applicable laws.
How is interest typically structured on private money commercial loans? Most private money commercial loans use interest-only payments with a balloon payment due at maturity. This structure keeps monthly carrying costs lower during the hold or renovation period. Some lenders also offer deferred interest options where payments accrue and are paid at maturity.
Get expert guidance on structuring your next private money deal. Contact Clearhouse Lending to connect with our experienced commercial lending team.
Sources: Federal Reserve monetary policy statement, January 2026; Commercial Real Estate Loans market data, February 2026; Finance Lobby CRE lending analysis; Private Capital Investors rate data.