What is a Private Lender?

A private lender doesn’t belong to an institution or formal organization but they are individuals or group of individuals interested in lending money. But the main reason behind lending money is to make good profits, which serves as the major motivation for them.

Usually, private money lenders aren’t big like a Bank but they are held privately by individuals or institutions who are interested in lending money.

These private lenders could work in the form of a company as well, which has their own money or which has got money from various private investors, who are eager to lend money for investment.

So, that’s the core of private money lenders. They do not follow any regulatory authority and therefore, they design their rules and regulations by themselves. They aren’t held under FHA or anything like that.

Another important fact about private lenders is that they do not believe in selling papers. Most of the conventional lenders package loans for people who have good credit scores and then they sell it to Wall’s Street and get their money back and the cycle goes on.

This is also called recapitalization i.e. they are lending on a property by charging some fees and ultimately getting their money back after they sell the property to a secondary market.

Private lenders don’t believe in that. They don’t like selling papers or recapitalization but they believe in lending, which is based upon the property and not the borrower.

If you have an excellent credit history but an inadequate property, which doesn’t seem to be profitable in the future, they won’t lend you on that.

This is because the private lenders don’t want to stick to the same procedures or guidelines like institutional lenders but they believe in making their own rules and regulations. Basically, they don’t want to work in a box like traditional lenders but they like it to be more open.

If a property is not typical or doesn’t stick to certain rules and regulations, private money lenders won’t shy away from funding it, “if” it is good enough.

To find true private money lenders, you need to ask them few questions like if they are looking for credit scores or job history or if they believe in selling papers or recapitalization. If their answer is yes, then they are not the lenders you are looking for.

If you need private money loans, then you need to make sure that you find the most suitable lender for you before getting the property under contract.

It is really important to decide whether you need lending for real estate or business. If you need a loan for real estate, then private money lender is what you should look for.

The basic difference between private and hard money lenders is of the word. Hard used to sound harsh, so people started using the term private lenders.

But it is called hard money because these loans are based upon the hard assets like real estate. So, at the end of the day, they both are the same thing.

Now, you must be thinking that what private money lenders are looking for or what do they want in the end?

Firstly, they want to get their money back i.e. if they are spending $150,000 on a property or if they are lending you this amount of money, then they want $150,000 back as well.

Secondly, they also want to make a profit on the money they are lending. So, if they are lending $150,000, then they want to make sure that they are making some profit on that as well. They don’t want to invest in a property, which isn’t exciting enough or which doesn’t seem to be promising.

That’s the ideal kind of situation, which these private lenders are looking for and they are ready to help the investors in finding a good property because it is in the favor of both.