What are hard money construction loans?
Hard money construction loans are short-term, asset-backed loans primarily underwritten to the value of the collateral rather than solely to borrower credit. These loans typically emphasize recourse vs non‑recourse terms, with many hard money lenders requiring full or partial recourse to the sponsor. Common use cases include ground-up commercial development, repositioning projects where speed is essential, and bridge-financing situations where traditional bank underwriting is too slow or restrictive.
Underwriting is collateral-first: appraised after-completed value (ACV) and loan-to-cost (LTC) metrics often drive approval more than debt-service-coverage ratio (DSCR) for construction phases. For developers in Atlanta, lenders will also consider local market values in Fulton and DeKalb counties when assessing collateral.
How hard money construction loans work for commercial new construction
For commercial new construction, lenders evaluate both loan-to-cost (LTC) and loan-to-value (LTV). Hard money construction loans typically advance a percentage of cost (LTC) — for example 60–75% — and may also cap LTV against ACV. The draw schedule is central: funds are released on inspection-based draws tied to milestones (foundation, shell, MEP, finish).
Interest treatment varies: many loans use interest-only payments during the build or capitalize interest into an interest reserve. Lenders maintain strong oversight: on-site inspections, conditional approvals for contractors, and release conditions tied to lien waivers and permits. That oversight reduces completion risk but increases monitoring fees and inspection costs.
Hard money construction loans timeline and draw oversight
Typical timelines depend on project scope and local permitting. In Atlanta, permitting times differ between Fulton and DeKalb, which affects schedule assumptions in the draw schedule. Lenders will set a hold period (often 12–36 months) and require contingency reserves for cost overruns.
Eligibility & underwriting considerations (Atlanta)
Underwriting for hard money construction loans in Atlanta places heavier weight on the project and sponsor experience than consumer credit scores alone. Lenders will ask for developer track record, GC references, and proof of allowed zoning and permits. General contractor (GC) requirements usually include licensing, insurance, and a verified schedule of values.
Permits and zoning checks are essential: Fulton and DeKalb have different timelines and code priorities; lenders factor these into the underwriting timetable. The sponsor’s experience reduces perceived execution risk; lack of experience often increases required reserves, higher points, or a lower LTC.
Costs, rates & fees for hard money construction loans
Costs are materially higher than traditional bank construction loans. Typical rate ranges for hard money construction loans vary by market and sponsor risk but often fall in a higher band than bank loans. In addition to interest, expect origination points (commonly 1–5 points), inspection and draw fees, and interest reserves. Some lenders charge upfront commitment fees and ongoing monitoring fees.
Compare hard money vs traditional bank construction loans: banks typically offer lower interest and fees and require stricter credit, DSCR, and longer approval cycles. Hard money prioritizes speed and flexible underwriting but at higher cost and tighter oversight.
Risks, timelines & exit strategies
Construction risk is primary: schedule delays, permit hold-ups, and cost overruns can exhaust contingency reserves. Hard money loans have limited hold periods, making a clear exit strategy essential. Common exits include refinancing into permanent bank financing or sale upon completion.
Contingency planning should cover increased costs, contractor default, and permitting delays unique to Atlanta (notably differences between Fulton and DeKalb). Lenders expect borrowers to model DSCR at stabilization for the refinance scenario even if DSCR is not the sole underwriting metric during construction.
Choosing a lender & next steps
Select lenders with a proven track record in commercial new construction and local approvals. Look for lenders familiar with Atlanta permitting and market values, knowledge of Fulton and DeKalb processes, and experience with local contractor availability. Ask for references on similar projects, sample draw schedules, and past closing timetables.
Sample due diligence checklist: ownership and entity documents, GC contract and schedule of values, market comps for ACV, permits and zoning confirmations, construction budget with contingency, and pro forma showing exit assumptions (refinance or sale). Documentation checklist should also include proof of insurance, contractor licenses, and a contractor lien waiver process for each draw.
Next steps: prepare a concise project packet with budget, timeline, contractor credentials, and local permit status; request term sheets from two or three experienced hard money lenders; compare LTC, LTV caps, interest reserves, points, inspection fees, and recourse terms before selecting a partner.
- Essential concepts covered: LTC, LTV, DSCR, draw schedule, interest reserves, recourse vs non‑recourse
- Comparison: speed and flexibility of hard money vs cost and criteria of traditional banks
- Local notes: Atlanta permitting timelines, Fulton/DeKalb differences, and contractor availability
This overview is informational and intended to help commercial developers in Atlanta evaluate hard money construction loans and prepare for lender conversations.
