When you consider starting a business, investing in real estate, or even buying a new home, financing is a significant and extremely important factor to consider. For most people this often means talking to your bank or other types of conventional lenders. Lucky for us those aren’t our only options. Working with a private money lender can also be an option for you!
Going through a traditional bank isn’t always ideal. The red-tape and requirements for borrowers can be extreme. Things can be much different when working with a private lender. If you are interested in working with a private lender, here’s what you need to know.
What is a private lender?
A private lender is generally an individual or even an organization that lends money to people on the market. These types of lenders are unlike conventional lenders. The difference is that a private lender won’t sell your home in the secondary market. They’re commonly used when the property you’re trying to purchase cant be financed by way of a conventional or government loan due to the lenders feeling at risk lending to you.
Why do they exist?
Considering that we often work with banks and other lending companies, it’s natural to wonder why private lenders exist. What is the purpose of one? Why insist on another lending option? Private money lenders offer more than just their money, they offer great reasoning as well.
- Minimal paperwork
- Easier qualifications
- Shorter payback period
- Wide range of products
- Mitigating risks
- Practical alternative
What types of private money lenders are there?
- Invoice factoring
- Private real estate loans
- Merchant advances
- P2P Lenders
- Industry-specific financing
How do you choose the right type of private lender?
- Points & Interest Rates: Do not forget to pay attention to points and interest rates. If there’s something you don’t understand, make sure to ask about it! Get a clear understanding before moving on. Not understanding something can cost you in the end.
- Lending Flexibility: A lot of people turn to private lenders because of their flexible lending options. If the lender seems to lack flexibility, consider finding a different one.
- Industry Expert: When it comes to funding a business, find a lender who is familiar with the industry your business is in. The more experienced your lender is in the industry, the more beneficial they are to you.
- Credibility: Ask yourself how credible they are! Are they well established? Can you trust them? What is their history with their past clients? Don’t overlook their reputation.
- Fees: Fees differ from one private lender to another. However, all private lenders have fees on top of the interest on your loan. Be aware of any fees that aren’t in writing. Don’t be afraid to ask your lender about the fees you’re expected to pay.
It can be a complicated thing when dealing with the lending industry. The industry continues to grow more in complexity as time passes. Though conventional lenders still exist as options for many, it isn’t the only feasible option today. Private money lenders offer many benefits and advantages typical conventional lenders cannot.