There are many types of asset-based loan financing options that investors can offer and assist with. With a “hard money” loan the project promoter would receive funding based upon and secured by the value of an asset, which in this case would be real estate/land parcel. The interest rate is higher for such loans, which is common practice because of the inherent risk of such a developmental stage project.
It is also based on that risk profile that many large financial institutions such as banks will rarely offer that type of financing. In fact, it is not uncommon for a “hard money” loan to be associated with real estate in bankruptcy or foreclosure status.
It must also be noted a “hard money” loan is never issued at the full market value of the real estate. Depending on the risk tolerance of the financing firm and circumstances surrounding the need for financing the loan commonly ranges between 60% – 80% of the market value of the real estate on average.
The primary difference between that type of financing and a swing loan is the timing aspect.
In this instance, a “hard money” loan is for a real estate asset with a clear path forward whereas a swing loan (or bridge financing) is for property in a type of transition. In short, a swing loan is for a normally short period until an additional, more permanent type of financing can be procured.
Generally, because a swing/bridge loan is based on an unsure future, the interest rate is usually higher. For instance, it can normally be procured by a landowner in which the property in question is in the process of being re-classified/re-zoned; in this case, a permanent type of financing, a construction loan, could take the place of the bridge.
Of course a swing loan is not solely based on real estate. Many companies seek to obtain this type of loan in order to take them through a transitional period. Some examples would be a company needing financing during a change of its top management or before an IPO.
Always make sure that you make an informed decision in all cases,
All the Best,