An annotated hard money term sheet

A hard money term sheet is usually one page. It will state a rate and a point count in bold, and it will state the things that actually determine what you pay in smaller type, or not at all.

Here is a specimen with every line annotated. The numbered markers link to the explanation, and the four lines that matter most are highlighted.

1. The borrower is an entity, and that is normal

   Nearly all business-purpose lending is written to a single-purpose LLC. It gives you liability separation from third parties — a contractor injury, a slip and fall. It does not separate you from this lender, because of the next line.

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2. "Jointly and severally" means each of you owes all of it

   Not a share each. If there are two guarantors and one disappears, the other owes the whole balance. Check whether a spouse is required to sign, which in a community property state can reach assets you think of as separate. See personal guarantees.

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3. Two different loan amounts, and it matters which is which

   The facility is $285,000. The money that actually wires at closing is $225,000. Interest, points and the exit fee may each be calculated on either — and on this sheet they are calculated on the larger one. Always ask which base applies to which charge.

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4. The holdback is not your money yet

   $60,000 sits with the lender and is released after work is completed and inspected. You fund each stage first and are reimbursed, so plan on floating roughly $15,000 at a time. See how draws actually work.

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5. This is the single most expensive line on the page

   Interest on the full facility means you pay 11% on $285,000 from day one — including the $60,000 you have not received. On the drawn balance instead, the same loan over seven months costs about $1,925 less, and on a construction budget the gap runs to five figures. Two lenders quoting "11% and 2 points" are not quoting the same loan. The arithmetic.

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6. Two points is not 2% of what you receive

   2% of the $285,000 facility is $5,700. You receive $225,000 at closing, so you paid 2.53% on the money you actually got. If you never draw the last $15,000 of rehab, it is higher still. Standard practice — and not what "two points" sounds like.

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7. Minimum interest: you pay for months you do not use

   Three guaranteed months at 11% on $285,000 is $7,838, owed even if you repay in week six. On a fast flip or a short bridge this is frequently the largest single hidden cost, and it is one of the most negotiable items on the sheet. What it costs.

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8. Twelve months is a deadline, not a guideline

   There is no amortisation. The entire $285,000 is due as a balloon on the maturity date. Model your hold as renovation time plus current days-on-market plus the buyer's closing timeline — if that exceeds twelve months you are already underwriting to an extension fee.

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9. "At Lender's sole discretion" is the phrase to argue about

   This is a permission, not a right. A lender who has to say no for their own capital reasons will say no however well you have paid. Push for the extension to be a borrower's right on payment of the fee. Note also the cost: 1% of $285,000 is $2,850 plus three more months of interest.

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10. Multiply this by your draw count

    $250 per draw sounds trivial. Four draws is $1,000; eight is $2,000. Ask how many draws the budget realistically needs, what the inspection turnaround is in business days, and whether materials stored on site can be drawn against.

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11. Ask who this is paid to

    Document preparation fees are sometimes paid to an entity affiliated with the lender. That is not improper, but it is worth knowing, and these fees are frequently waivable because they are the lender's own rather than a third party's.

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12. "Due upon acceptance, non-refundable" — read this twice

    This is money you pay before closing, and you do not get it back if the loan does not fund. That may be perfectly legitimate. It is also the shape that advance-fee fraud takes, so confirm the lender is real before you send it, and prefer fees payable to a licensed title or escrow company. How to tell the difference.

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13. The good news line

    No exit fee. Many sheets carry 1–2% payable at payoff and do not mention it in the headline pricing. If yours has one, it is pure margin and is often removable — ask.

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14. What happens if it goes wrong

    24% default interest, and note what is missing: no cure period is stated. Ask for one in writing, and ask from what date default interest begins to accrue. See extensions and default.

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15. The expiry is a sales tool as often as a real constraint

    Seven days is short enough to discourage you from getting two other quotes. Get them anyway. If the deal is real, the lender will re-issue.

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Nothing on that page is unusual. It is a normal term sheet from a normal lender. The point is not that anything is hidden — it is that four of the five things determining your cost are in ordinary type, and the two things in bold are the two that matter least.

Put your own quote through the true-cost calculator and compare in dollars.