Do you know the difference between hard money bridge loans and peer to peer loans? If you are considering either type of loan, there are some important differences you really must understand.

First of all, hard money loans are collateralized by real property using a low Loan to Value (LTV) ratio (and often a high interest rate). Credit history really doesn't matter too much to a hard money lender, because they are more interested in the high rate of return. The safety of their capital comes from the fact that they are able to foreclose on the collateralized property if the borrower flakes out on the payments.

The loan is actually pretty safe for them, due to the fact that the LTV is low-balled (60 to 70% max, generally), but the value itself is low-balled using a price that is believed by the investor to be the "quick sale value." This means the hard money lender can usually get his capital back in a relatively short time in case of default.

Now, let's take a look at the bridge loan aspect of this. A bridge loan is basically a short term loan that is intended to bridge the time between the purchase (or need for capital, as the case may be) and the availability of traditional sources of funds. Most underwriters require a seasoning period from the time of purchase before they will refinance a property.

Let's say an property investor has the opportunity to purchase a property at far below market value, but the property is going to require a lot of work. If a conventional lender will not loan money because of the condition of the property, a hard money bridge loan may be secured which would offer the property buyer the time necessary to make needed repairs during the "seasoning period." Later, the hard money loan could be refinanced using conventional financing at a lower rate. Often, fast hard money loans are available so you don't have to wait a long time to complete the transaction.

Lastly, peer to peer lending is simply business or real estate loans made from one private party to another, usually not secured. In a typical scenario, a business owner gets a big order, but perhaps does not have the capital to purchase the raw materials to complete the order. So he goes to a peer lender who knows his business and has some capital to lend. He is resorting to peer to peer lending in this case to get the deal done.