In California’s high-demand real estate market, construction projects rarely fit the perfect mold banks expect. Between delayed permits, land without existing utilities, and phased construction timelines, traditional lenders often hesitate to fund early.
That’s where construction hard money loans step in. They provide the speed, flexibility, and access to capital needed to start building now—long before banks are ready to issue permanent financing.
Think of hard money as the on-ramp to your long-term financing strategy, not a competing lane.
What Is Construction-to-Permanent Financing?
A construction-to-permanent loan, often called “one-time close” financing, allows borrowers to fund both the construction phase and the long-term mortgage with a single loan.
However, for many California investors and small developers, banks only issue these after:
- Full architectural and engineering approvals
- Finalized permits
- Clean title and environmental clearance
- A history of construction experience
That can take months—or longer. During that gap, the property sits idle, costs accrue, and opportunities fade.
A construction hard money loan bridges that gap by funding:
- Land acquisition or refinance
- Vertical construction costs (draw-based)
- Soft costs like permits, architect, and utilities
- Carrying costs until refinance
Once the project is built and stabilized, you refinance into permanent financing (bank, DSCR, or agency loan).
Why California Builders Rely on Hard Money First
1. Speed and Certainty
Traditional banks can take 90+ days to underwrite a construction loan. Private lenders, by contrast, can close in 5–10 business days, often funding land or foundation work before entitlements are finalized.
That’s critical in markets like Los Angeles, San Diego, or Sacramento, where timing kills deals.
2. Funding Before Final Permits
Most California lenders won’t touch a project until all approvals are complete. Private lenders, however, often fund pre-permit or partially entitled land if the borrower has a credible plan and builder.
This means investors can:
- Secure the parcel early
- Begin site prep or grading
- Finalize permits without losing time
3. Flexible Structure and Draws
Hard money construction loans are tailored to project realities, not rigid formulas. Draws can be structured by phase—foundation, framing, finish—paid after quick inspections.
This flexibility keeps your cash flow intact and avoids the “funding lag” common with banks.
4. Bridge to Permanent Exit
Private lenders understand they’re the first phase of your plan. Their goal is to get you to the takeout lender smoothly.
That’s why strong lenders, like Lending Bee, align your construction loan with your refinance requirements—making it easier to transition later.
Example: Bridge-to-Perm in Action
📍 Project: 4-unit new build, Fresno County
- Land Purchase: $450,000
- Construction Budget: $1.2 million
- Estimated ARV: $2.4 million
Phase 1: Hard Money Construction Loan
- Funded 70% LTC
- 12-month term, interest-only
- 5-day approval
Investor used Lending Bee’s construction hard money loan to complete build-out and stabilize rentals.
Phase 2: Permanent Financing
- Refinanced into 30-year DSCR loan
- 75% LTV
- Payout covered the hard money payoff and returned equity to reinvest.
Outcome:
A project that banks initially declined became a profitable long-term asset—funded on schedule without losing a construction season.
How to Transition Smoothly from Hard Money to Permanent Financing
Step 1: Plan the Exit from Day One
Before closing your hard money loan, clarify your takeout strategy:
- Bank or credit union loan
- DSCR refinance
- Portfolio or agency lender
A good private lender will structure your term and draws to align with your refi timing.
Step 2: Keep Your Documentation Clean
Even though hard money is flexible, your eventual bank refinance isn’t. Maintain detailed records of:
- Draws and inspections
- Contractor invoices and permits
- Certificate of occupancy and rent rolls
These will be required at refinance.
Step 3: Communicate With Both Lenders
When your project reaches 70–80% completion, begin your permanent loan application. Many investors coordinate directly between their private lender and future takeout lender to streamline payoffs and avoid gaps.
Step 4: Budget for Carrying Costs
Interest-only payments help during construction, but remember: property taxes, insurance, and utilities continue. Budget for them in your hold cost calculation.
When Hard Money Is the Smart First Step
Hard money construction financing makes sense when:
✅ You need to move before permits finalize
✅ You’re building or rehabbing multiple projects simultaneously
✅ You need flexible draw schedules
✅ You’re targeting quick refinance or sale within 12–18 months
It’s not just for investors in distress—it’s for builders who understand that speed, liquidity, and control are competitive advantages.
Lending Bee’s Approach to Construction and Bridge Lending
At Lending Bee, we specialize in California-based bridge-to-permanent strategies. Our team helps investors, builders, and small developers:
- Secure construction funding fast—often in 5–7 business days
- Align draw schedules with real project milestones
- Transition into DSCR or conventional takeout loans efficiently
By structuring loans with both today’s project and tomorrow’s refinance in mind, we help borrowers stay liquid and profitable through every stage.
Takeaway
For California builders and investors, construction hard money loans aren’t a last resort—they’re a launchpad.
They get you started when banks won’t, keep your timelines intact, and position you for success when your permanent lender is finally ready.
If you’re planning your next ground-up build, value-add project, or mixed-use rehab, consider starting smart—with a lending partner that understands both speed and strategy.
Sources
- California Department of Financial Protection & Innovation – Lending Guidelines
- Forbes – How Construction-to-Permanent Loans Work
- BiggerPockets – Using Hard Money for New Construction Projects
- Bankrate – Construction Loan vs. Permanent Mortgage
- The Mortgage Reports – Bridge Loan Financing Explained (2025 Update)