Why would a borrower use hard money?

The quick answer is...well, quick! Say a borrower has applied for a conventional commercial bank mortgage, but the time-of-the-essence closing date is rapidly approaching. The bank is still completing its due diligence, with no assurance of funding, yet the borrower must close on schedule to avoid losing a hefty contract deposit.  The borrower therefore chooses to finance with a hard money lender. Then, after this “bridge loan” closes, the borrower can invest the time necessary to shop for and acquire, permanent commercial financing.

Also, vacant land or badly distressed properties do not fit today's highly regulated bank lending criteria. A local hard money lender will be more familiar and comfortable with the development risk of such a loan. She may be willing to get more deeply involved than most banks, evaluating the "soft data", like, a borrower’s track record or viability of the Borrower’sbusiness plan. A bank would rather finance the deal AFTER the Borrower has executed his business plan, rented the property, and created positive cash flow. 

Last, and certainly not least, a short term loan, up to a year or more, is much less expensive than bringing in equity partners. When you break it down, a 12% annual interest rate is ONLY 1% per month. Try finding an investor partner for less than 50% of your hard earned profits!