14 Lending Terms Every Real Estate Investor Should Know

Real estate investing, whether you’re flipping houses or building a fourplex, means learning a new financial language. Private loans can be powerful tools, but acronyms like LTV or ARV often sound like alphabet soup to newcomers.

This guide breaks down key terms in private lending and hard money financing, with clear definitions and examples. The goal: help you speak the language of real estate finance and understand how a local lender like Cetan Funds can be a strategic partner.

#1. Hard Money Loan

Definition: A hard money loan is a short-term real estate loan based primarily on the property’s value, not the borrower’s credit.

Example: You find a fixer-upper that needs to close in 10 days. A bank won’t move that fast, but a hard money lender like Cetan Funds could approve and fund the deal in time—focusing on the property as collateral so you can start renovations immediately. In these scenarios, hard money lenders can move faster than traditional lenders.

#2. Private Lender

Definition: A private lender refers to any non-depository individual or private company, like Cetan Funds, that lends money for business/investment purposes typically on real estate . These lenders use their own capital or investor-backed funds to finance loans, typically offering quicker approvals and flexible terms than traditional banks. Hard money lenders are almost always private lenders, but not all private lenders are hard money lenders. 

Example: If a borrower doesn’t qualify for a bank loan due to limited credit history, a local private lender may still provide funding for a house flip. For example, a Portland investor might secure financing from Cetan Funds to renovate a rental property. With a strong understanding of the market and project potential, Cetan Funds prioritizes property value and the renovation plan over credit score. The result is a fast, common-sense loan approval that a traditional lender might have declined.

#3. Pooled Private Equity Fund

Definition: A pooled private equity fund is an investment fund that combines capital from investors. The fund managers then use that combined capital to finance a diversified portfolio of loans or real estate projects. This structure reduces risk for both investors and borrowers and allows for faster, more stable funding. Some funds, like Cetan Income Fund, require investors to have a high net worth (i.e. be accredited), while others, like Cetan Opportunity Fund, have lower financial qualifications but only allow investments from residents of a certain state (e.g. Oregon).

Example: Cetan Funds is a pooled private equity fund backed by nearly 200 investors. Unlike many private money lenders, Cetan doesn’t match loans to individual investors or rely on banks or Wall Street. Instead, it manages its own capital through the Cetan Income Fund and Cetan Opportunity Fund, with principals directing underwriting decisions and selecting each project—ensuring stable, secure financing for borrowers.

#4. Loan-to-Value (LTV) Ratio

Definition: LTV is a key risk metric for lenders—lower LTV means more borrower equity and less lender risk. A 70% LTV, for example, means the lender finances 70% of the property’s value, with the borrower covering the remaining 30%. Cetan Funds typically lends up to 70–75% LTV, providing responsible leverage that enables quick action while preserving strong equity.

Example: If a real estate investor plans to purchase a $200,000 property, a loan with a 70% LTV means the lender would finance $140,000, leaving the investor responsible for the remaining $60,000. In the case of a fix and flip, lenders like Cetan Funds can base their LTV on the after-repair value. So in the example above if that property was going to be rehabbed and upon completion it was projected to be worth $350,000, Cetan Funds could potentially finance up to $245,000 of the project costs (70% of $350,000).

#5. After-Repair Value (ARV)

Definition: ARV stands for After-Repair Value, which is the estimated market value of a property after you’ve completed renovations or improvements. This term is crucial for house flippers and developers because it helps determine how much profit a project might yield and how much a lender might finance. Many private lenders will consider the ARV when structuring a loan, especially for fix-and-flip projects (see above). 

Example: If an investor buys a fixer-upper for $150,000 and plans $50,000 in upgrades with a $250,000 ARV, a private lender like Cetan Funds may lend up to 70–75% of that ARV (about $175,000) to cover purchase and rehab costs. Knowing your ARV helps ensure the deal and financing support your investment goals.

#6. Promissory Note

Definition: A promissory note is a legally binding agreement where the borrower commits to repaying a loan under specific terms, including the amount, interest rate, repayment schedule, due date, and any penalties. It serves as the borrower’s formal promise to repay the lender.

Example: In private lending, including hard money loans, the promissory note is a core loan document outlining the borrower’s obligations and the lender’s rights. At Cetan Funds, all borrowers sign this note at closing to ensure clear, transparent repayment terms. It protects both parties and is essential to the funding process.

#7. Pre-Approval Letters and Fund Guarantee Statements

Definition: Pre-approval letters and fund guarantee statements are official letters issued by a lender confirming that financing has been pre-approved or that funds are guaranteed to be available for a specific project or purchase. These documents help demonstrate to sellers, brokers, or agents that the borrower has the financial backing needed to close the deal.

Examples: At Cetan Funds, we typically provide pre-approval letters or fund guarantee statements within hours for a pre-approved borrower, giving borrowers a clear advantage when acquiring properties by helping them demonstrate financial strength and the ability to close quickly in a competitive market.

#8. Points and Origination Fees

Definition: Points and origination fees are upfront charges paid to the lender to cover administrative and risk-related costs. A lender’s fees are shown as points. One point is equal to one percent of the loan amount. Typical origination fees on private loans range from 2 to 4 points. In other words, 2 to 4 percent of the total loan amount.

Example: For a $100,000 loan, a 3 point origination fee equals $3,000, typically deducted at closing. At Cetan Funds, fees generally range from 2 to 4 points, depending on the project and loan structure. These fees support fast approvals, in-house underwriting, and direct access to decision-makers, providing investors with both speed and flexibility.

#9. Bridge Loan

Definition: A bridge loan is short-term financing that provides immediate cash while an investor awaits long-term financing or a property sale. It bridges the gap between transactions, allowing borrowers to act quickly on time-sensitive opportunities without delays from traditional lenders or meet short-term financial needs that traditional lenders cannot help with.

Example: Bridge loans are ideal when borrowers need to close quickly or buy a new property before selling an existing one. Cetan Funds offers flexible terms, typically from 3 to 12 months, and up to 60 months in some cases. For example, a business owner used a Cetan bridge loan to fund deferred maintenance on a manufacturing plant, increasing its market appeal and enabling a successful sale. In another case, an investor used a Cetan bridge loan to complete a reverse 1031 exchange, where he purchased a new property before selling his current property and allowing him to payoff Cetan and defer his taxes when the current property sells.

#10. Construction Holdback

Definition: A construction holdback refers to funds that are set aside by the lender and released in stages as specific repairs or construction milestones are completed. This structure ensures that loan proceeds are used strictly for the intended improvements and protects both the borrower and the lender from misuse of funds.

Example: Holdbacks are commonly used in construction, fix-and-flip or rehab loans to fund property improvements. As the project progresses, borrowers submit draw requests with supporting documents, and the lender releases funds based on verified progress. At Cetan Funds, construction holdbacks are customized for each project; this ensures smoother execution and better cost control.

#11. Draw Schedule (Construction Draws)

Definition: A draw schedule outlines when loan funds are released in stages as a project meets key milestones. Instead of receiving the full amount upfront, borrowers access funds incrementally, often after progress is verified through inspections. This approach ensures proper use of funds, improves cash flow management, and reduces risk for both borrower and lender.

Example: Each “draw” corresponds to a specific stage of the project, such as site preparation, framing, roofing, or interior finishes. Borrowers submit draw requests with supporting documentation like invoices, receipts, or photos of completed work. At Cetan Funds, draw schedules are customized to the project’s scope and timeline. Draws are processed quickly with no fees, and interest is charged only on the funds that have been drawn, helping to keep financing costs lower during construction or renovation.

#12. Loan Term (Duration)

Definition: The loan term is the period a borrower has to repay the loan in full. In private and hard money lending, terms are typically short, often between 6 and 24 months, aligning with investment timelines for flips, bridge loans, or construction. These shorter terms give investors flexibility to complete projects or refinance without the long commitment of a traditional mortgage.

Example: Typically fix and flip loans are 6 to 12 months. Borrowers pay interest-only payments until they either sell and flip the property or the loan comes due at the 6 or 12-month mark. Some private lenders offer terms as short as 3 months and up to 60 months, depending on the project’s complexity and the borrower’s needs. At Cetan Funds, extensions are built in, giving borrowers added flexibility to manage unexpected delays.

#13. Collateral

Definition: Collateral is the asset, typically real estate, that a borrower pledges to secure a loan. It provides protection for the lender, who can recover funds by taking and selling the property if the loan is not repaid. In private and hard money lending, collateral is central to the approval process, with property value, condition, and location often carrying more weight than the borrower’s credit or income. Strong collateral can lead to more favorable terms and faster funding.

Example: At Cetan Funds, collateral typically includes the property being purchased, renovated, or refinanced. In some cases, additional real estate can be pledged to strengthen the loan request. The loan is secured by a deed of trust, giving Cetan Funds legal rights to the property if the borrower defaults. Using real estate as collateral allows Cetan Funds to provide fast, common-sense lending solutions while providing security for the Fund providing the capital for the loan.

#14. Prepayment Penalty

Definition: A prepayment penalty is a fee a borrower may be required to pay if they repay a loan before the agreed-upon term ends. Some lenders charge this to recover a portion of the interest income lost due to early repayment.

Example: Cetan Funds does not typically charge prepayment penalties if the project is completed as proposed, giving borrowers the freedom to repay their loans early—whether through a refinance or property sale—without incurring extra costs. This flexibility helps borrowers reduce interest expenses and maximize profits.

Understanding key lending terms helps borrowers navigate hard money financing with confidence and make informed decisions. For first-time and early-stage investors, this knowledge is essential for evaluating loan offers and communicating effectively with lenders.

Cetan Funds serves as more than just a lender; we are a trusted local partner offering fast approvals, flexible terms, and personalized service across Oregon and Southwest Washington. With in-house underwriting and funding often completed within a week, we enable investors to move quickly and seize opportunities.

Those looking to finance their next project or explore lending options are encouraged to contact Cetan Funds. With a commitment to client success and deep regional expertise, we help turn real estate goals into reality, one project at a time.