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Hard costs
Also called third-party costs, out-of-pocket costs, direct costs.
Out-of-pocket amounts a lender pays to third parties on a specific deal — appraisals, searches, filings, inspections — as opposed to the lender's own margin, and in construction, the physical building costs.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
The phrase has two settled uses and they do not overlap.
In a funding file
Hard costs are what the lender actually pays out on your transaction: the UCC search and filing fee, the appraisal, the environmental report, title work, lien searches, a field examination, a site inspection, background checks, legal fees for document preparation. They exist whether or not the deal closes and can normally be evidenced by an invoice from the party who did the work.
Everything else — origination fees, processing fees, administrative fees, underwriting fees — is the lender's revenue, whatever it is called. The distinction matters because hard costs are usually not negotiable and lender fees usually are.
In construction and CRE
Hard costs are the bricks: labour, materials, site work, equipment installed in the building. Soft costs are architecture, engineering, permits, legal, insurance, interest during construction, and developer overhead. A construction lender budgets them separately, funds them on different draw logic, and holds a contingency against the hard cost line specifically because that is the one that overruns.
Where this one catches people
"Hard cost pass-through" is a claim that can be checked and frequently is not. Ask for the third-party invoice. A UCC filing fee is a published state charge; if the closing statement shows a materially larger number for the same line, the difference is a lender fee wearing a hard-cost label. This matters most in small deals, where a few hundred dollars of marked-up 'costs' is a meaningful slice of the total price.
Where you will meet this term
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Hard costs — common questions
What does hard costs mean?
Out-of-pocket amounts a lender pays to third parties on a specific deal — appraisals, searches, filings, inspections — as opposed to the lender's own margin, and in construction, the physical building costs.
Where does hard costs catch people out?
"Hard cost pass-through" is a claim that can be checked and frequently is not. Ask for the third-party invoice. A UCC filing fee is a published state charge; if the closing statement shows a materially larger number for the same line, the difference is a lender fee wearing a hard-cost label. This matters most in small deals, where a few hundred dollars of marked-up 'costs' is a meaningful slice of the total price.
Is hard costs the same as an interest rate?
Hard costs is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does hard costs apply to?
Term Loan, SBA Loan, Equipment Financing, Asset-Based Lending.
Is there a worked example of hard costs?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside hard costs?
Closing costs, Good faith deposit, Lien search, Origination fee, Soft costs.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.