There Is A Lot To Know About Private Money Lending Apart From The Basics

Private money lending business is booming and is at par the formal financial system of these modern days. These have proved to be a useful alternative to borrowers who are in desperate need of money and do not fulfill the requirements of traditional banks and NBFCs to get a loan. To make the best use of these fortunate friends, you will need to know the basics and even beyond it.

  • Just as the name signifies, private money lending is lending capital for investments.  Often, these loans given out by the private lenders are secured with various instruments and collateral such as a vehicle or a real estate property.
  • There are usually two ways in which you can obtain these loans, especially if you want to us it as your business capital. One of it is through personal investors and the other is through these private money lenders.

Personal investors can be any individual such as your friend or a family member. It can also be a group of individuals with direct capital put in the pool to fund the loans you require. Private lenders on the other hand are separate business entities that manage their own capital and offer loans, much similar in operation and control like a bank.

Finding the appropriate loan

You will find a private lender very easily but to choose the right kind of loan as per your requirement is not an easy and quick process. Often known as hard money lenders, these companies or individuals will have higher rates and strict terms for offering loans. It is for this reason you are recommended not to move on your own. Often a word of mouth recommendation is helpful in this venture.

You can also take help of a real estate mortgage broker for this matter. These brokers are not an employee of the lenders or investors but ratherspecialize as an entrepreneur in establishing a connection after matching right borrowers with the right lenders or investors. The most significant benefit of working with such broker is that they will coordinate the entire process and package your loan right from the start to finish. They will help in maintaining a constant communication all through.

The process breakdown

Acquiring a private loan is not a cookie cutter because these people provide loans are highly sophisticated and savvy. They will have different loan programs offered at different terms. The lending criteria of each lender will be different. It is therefore required that you know about the process, the terms and conditions.

Finding the right lender

It starts with finding the right lender. You will find banks at every corner but not a private money lender. You will have to look up in the directory service or ask around for referralsor search through the internet. Once you find some names ensure that you:

  • Ask them for reference names from both recent and previous clients
  • Avoid those charging high foreclosure rates
  • Make sure to request who services theloans
  • Track foreclosures through online portal and
  • Avoid those with very low flexibility or tolerance.

Submit the loan application

The next step involves your application for the loan. This involves:

  • Filling up the loan application form
  • Completing the Statement of Information

Make sure that you provide full disclosure on the forms to enable the lender to know your financial situation in a snapshot. Ideally, the Statement of Information form is very important as that will determine the amount and type of loan. Along with these you will need to provide a few other documents that will include but will not be limited to:

  • Income statements
  • Tax returns
  • Bank statements
  • Financial statements
  • Valuation information of collateral if any
  • Proof of residence and identification.

However, types of document required will vary according to the loan type and specific policy of each lender.

Choosing a loan program

Next up is the specific loan program that you want for your needs. There are several types of such loan programs offered by private money lenders. Visit or any other of your choice to sift through different types of programs. While you do look for the following:

  • The available amount of loan in each
  • The terms and conditions of the loan
  • The rate of interest of each
  • The repayment schedule or equated monthly installments
  • The tenure of each loan.

Time for an interview

Almost in all cases the private money lender will also conduct an interview with you to know more than what is revealed through the documents. You will need some preparation for such an interview. Make sure that you:

  • Carry a well assembled file for your documents
  • All forms duly filled up neatly and as comprehensive as possible
  • All are duly signedand
  • Be yourself.

Speak thoughtfully and intelligently with the lender about the purpose of your loan supporting your statements with valid and relevant documents, if possible. Inform about your plan for using the loan proceeds and also your arrangements for its repayment.

Loan processing process

Once all documents are submitted, you are interviewed and the loan type identified, the private money lender will begin the processing of your loan. This process will differ according to the type of loan you applied for and all may not be applicable for your loan type. However, the usually process includes:

  • Reviewing of all documents and title if any
  • Verifying these documents with the relevant sources if required and
  • Look for liens, judgments, or any other encumbrances.

Final loan approval

After all the above processes are completed the private money lender will inform you that your loan is approved and is sent to the docs. It will take some time to generate the docs that may or may not be done but an outside company. Therefore, expect a couple of days to get it done and the final approval of your loan.

Lastly, you will be called for signing the loan contract. During this process you must make sure that everything is clearly mentioned in the contract and the terms are matching with what was formerly offered.