Here’s What I Should Have Known
During my first month at Baseline, I sat across from a lender at a client dinner — tactically maneuvering my way through a forty-five minute conversation I understood maybe twenty percent of. LTV. ARV. Points. Draw schedule. Exit strategy. Salad fork. All foreign concepts at the time.
My financial expertise consisted of a film school production budget spreadsheet and a student loan I was actively avoiding, so I was clearly in over my head.
The man seated across from me was animated, clearly passionate, explaining something about a deal that had gone sideways. I was nodding along with the quiet confidence of someone who definitely knew an LTV was in fact, not a recreational off-roading vehicle.
I came out of that dinner with no clue what most of it meant — and more importantly, no idea where to start educating myself.
Private lending has its own vocabulary. It isn’t jargon for jargon’s sake — most of the terms name real, specific things that don’t have good everyday equivalents. Nobody hands you a glossary when you walk in the door, whether you’re a new hire, an investor just entering the space, or someone who found themselves adjacent to a lender through a relationship, a job, or even a dinner reservation.
As someone who’s been there, I’m hoping my newfound experience can help you before that next dinner. It won’t make you an expert. But it’ll ensure your companions will be none the wiser.
First: What Even Is Private Lending?
Private lending is the business of making loans — usually for real estate — outside the traditional banking system. No bank, no credit union, no government-backed mortgage program. Instead, the capital comes from a private individual, a fund, or a company that has chosen to be in the lending business.
The reason borrowers seek private lenders instead of banks usually comes down to two things: speed and flexibility. Banks have rigid qualification criteria and can take months to approve a loan. A private lender can often close in days, and they can structure a deal around the specifics of the property rather than a standardized checklist.
The trade-off for the borrower is cost — private loans typically carry higher interest rates and fees than conventional bank financing. For the lender, the attraction is yield: returns that are higher than most fixed-income alternatives, secured against real property.
The reason borrowers seek private lenders instead of banks usually comes down to two things: speed and flexibility.
One small vocabulary note before we get into terms: the industry has been actively moving away from the phrase “hard money” — the old shorthand for this type of lending. Trade groups like the National Private Lenders Association and the American Association of Private Lenders have encouraged the shift toward “private lending,” “bridge lending,” and “transitional lending.” If you hear all three in the same conversation, they’re often referring to the same thing.
The Terms You’ll Hear Most
These are the ones that come up constantly — in deal conversations, in underwriting discussions, and in the kind of dinner table talk that motivated this article.
LTV — Loan-to-Value
The ratio of the loan amount to the value of the property. If a property is worth $500,000 and the lender is offering $350,000, the LTV is 70%.
Why it matters: LTV is how lenders measure risk. A lower LTV means the lender has more cushion if the borrower defaults and the property needs to be sold. Most private lenders operate in the 60–75% LTV range.
LTC — Loan-to-Cost
The ratio of the loan amount to the total cost of acquiring and renovating the property — purchase price plus rehab budget. Where LTV measures against what the property is worth, LTC measures against what it costs to buy and build.
Why it matters: LTC comes up on construction and renovation deals where the property’s current value doesn’t reflect the work planned. A lender might cap LTC at 85%, meaning they’ll finance up to 85 cents of every dollar it costs to complete the project.
ARV — After-Repair Value
What the property will be worth after renovations are complete. This is a projected number, usually based on an appraisal or a comparable sales analysis.
Why it matters: On fix-and-flip and construction deals, lenders often structure the loan around ARV rather than the current value of the property. A house that’s worth $300,000 today might have an ARV of $450,000 after a full renovation — and the loan is sized against that future number.
RTL — Residential Transition Loan
The institutional term for a short-term bridge, construction, or renovation loan on a residential property. It’s the same product most people in the industry call a bridge loan or a fix-and-flip loan — the terminology just tends to show up when institutional capital or securitization is involved.
Why it matters: If someone at the table shifts from saying “bridge loan” to saying “RTL,” they’re probably talking to an investor audience or referencing how the loans get packaged and sold. Same product, different register.
Points
An upfront fee charged by the lender at closing. One point equals one percent of the loan amount. A lender charging 2 points on a $400,000 loan collects $8,000 at close, before a single interest payment is made.
Why it matters: Points are a meaningful part of a lender’s return — and a meaningful cost for the borrower. They’re negotiated as part of the deal terms and vary by lender, loan type, and borrower track record.
Bridge Loan
A short-term loan that bridges a gap — usually while the borrower is waiting to sell another property, close a long-term refinance, or complete a renovation.
Why it matters: Most private lending is bridge lending. The loans are designed to be temporary by nature — typically six to twenty-four months. The borrower has an exit strategy; the lender is financing the gap until that exit happens.
Interest Reserve
Money set aside at closing to cover the borrower’s interest payments during the loan term — typically on construction deals where the property isn’t generating income yet and the borrower needs a buffer while the project is underway.
Why it matters: An interest reserve protects both sides. The borrower isn’t scrambling to make monthly payments while a renovation is in progress. The lender isn’t chasing a distracted borrower for checks. It’s built into the loan structure from the start.
Draw
A disbursement of funds during a construction or renovation project. Borrowers on these loans don’t receive the full loan amount at closing. They draw money down in stages as work is completed.
Why it matters: Draws protect the lender — funds are only released when inspections confirm the work has been done. For a lender managing a portfolio of construction loans, draw management is one of the most operationally intensive parts of the business.
Draw Schedule
The agreed-upon plan for when and how draws are released. Typically tied to project milestones: foundation complete, framing complete, mechanical rough-in, and so on.
Why it matters: A clear draw schedule is what keeps a construction project — and the loan behind it — on track. When draws are managed poorly, projects stall, budgets overrun, and lenders are exposed.
Origination
The process of creating a loan — from application through underwriting, approval, and closing. When a company says it “originates loans,” it means it’s in the business of making them.
Why it matters: Origination is one half of the business. The other half is servicing. A lender can originate and sell loans, originate and hold them, or some combination of both.
Servicing
Everything that happens after the loan closes — collecting payments, managing escrow accounts, processing payoffs, handling defaults. Servicing is the operational backbone of a lending portfolio.
Why it matters: Origination gets the deal done. Servicing is what keeps the business running. Some lenders service their own loans; others outsource it to a third-party servicer.
Exit Strategy
The borrower’s plan for paying the loan back. Common exits include selling the property, refinancing into a longer-term loan, or completing a development and selling individual units.
Why it matters: Private lenders care about this because their loans are short-term. If a borrower’s exit strategy is implausible — the renovation timeline is unrealistic, the refinance market has shifted — the loan is at risk from the start.
Collateral
The asset securing the loan. In private lending, this is almost always real property. If the borrower defaults, the lender’s recourse is the collateral.
Why it matters: Private lending is asset-based lending. The quality of the collateral — its location, condition, and marketability — matters as much as or more than the borrower’s credit history.
Lien
A legal claim against a property. When a lender funds a loan, they record a lien — which means they have a legal interest in the property until the loan is repaid.
Why it matters: Lien position matters. A first lien lender is first in line to be repaid if the property is sold or foreclosed. A second lien lender gets paid only after the first is made whole — which is why second liens carry more risk and higher rates.
DSCR — Debt Service Coverage Ratio
A measure used on income-producing properties. It compares the property’s net operating income to its loan payment. A DSCR of 1.25 means the property generates 25% more income than it costs to service the debt.
Why it matters: DSCR is the primary metric for rental property loans. A DSCR above 1.0 means the property covers its own debt. Below 1.0 means it doesn’t, and the borrower has to make up the difference out of pocket.
Capital
In this context, the money a lender deploys into loans. “We have capital to deploy” means they have funds available to lend. “Capital constraints” means they don’t.
Why it matters: Understanding where a lender’s capital comes from — their own balance sheet, a fund, a line of credit — matters because it affects how they operate, what they can lend on, and how quickly they can move.
Terms That Sound Alarming But Are Routine
A few words come up in private lending conversations that sound more dramatic than they are in practice.
Default
The borrower has stopped making payments — typically defined as ten to thirty days past due. Default triggers the lender’s remedies under the loan documents, which can include charging default interest, accelerating the loan balance, or beginning foreclosure.
In practice: Default is serious, but it’s also a standard part of the business. Experienced lenders build loss assumptions into their underwriting and have processes for working through distressed loans. A single default on a well-underwritten loan, at a 65% LTV against a marketable property, is usually a problem that gets solved.
Foreclosure
The legal process by which a lender takes ownership of a property after a borrower defaults. The timeline and process vary significantly by state — some states take months; others can take years.
In practice: Foreclosure is the lender’s ultimate remedy, but most lenders prefer to avoid it. It’s slow, expensive, and uncertain. More often, lenders and borrowers negotiate a resolution — a loan extension, a deed-in-lieu, or a short payoff — before foreclosure is necessary.
Maturity Date
The date the loan comes due. The borrower is obligated to repay the full balance on or before this date.
In practice: On bridge loans, the maturity date is the pressure point of the deal. If the borrower’s exit hasn’t materialized by then — the renovation isn’t done, the refinance fell through — they need either an extension or a new plan. Lenders handle maturity extensions regularly.
Mechanic’s Lien
A legal claim filed against a property by a contractor, subcontractor, or supplier who performed work or provided materials and wasn’t paid.
In practice: Mechanic’s liens can cloud title and block a sale or refinance until they’re resolved. On construction loans, lenders use title insurance, lien waivers, and draw inspection protocols to manage this risk.
What to Actually Say
Knowing the vocabulary is one thing. Being able to hold a conversation is another. A few questions that tend to land well when you’re talking to someone in the industry — not because they’ll think you’re an expert, but because they signal you’re paying attention.
“What asset class do you focus on?” — This opens the door to the specifics: fix-and-flip, ground-up construction, DSCR rental, commercial bridge. Each has a different risk profile and operational shape, and lenders usually have a strong opinion about where they want to play.
“Are you deploying fund capital or your own balance sheet?” — This gets at the structure of the business. Fund managers have investors to answer to and return targets to hit. Balance sheet lenders have more flexibility. Either way, it’s a question that signals you understand there’s a capital structure behind the loans.
“How are you managing draw requests right now?” — If they’re a construction lender, this is the question that tends to generate the most honest answer. Draw management is one of the most operationally painful parts of the business, and most lenders have a strong opinion about how it should be done. You’ll learn more from this one question than from five minutes of general conversation.
And if you want to be honest about where you’re coming from: “I’m still learning the space — can you help me understand how you think about X?” Most people in private lending enjoy talking about what they do. A genuine question lands better than a performed familiarity.
If This Whetted Your Appetite
This glossary covers the terms you’ll hear most. It doesn’t cover everything — private lending is deep, and the further in you go, the more specific the vocabulary gets.
If you want to go further, Lend to Live by Alex Breshears and Beth Johnson is the clearest entry point into the industry written for people who are new to it. It's accessible without being condescending, and it covers both the investor side and the operational side of the business.
And if you’re evaluating software to actually run a private lending operation — origination, servicing, draw management, capital ops — that’s what Baseline is built for.
