Private money lenders have several advantages, including greater flexibility and shorter turnaround times than traditional financial institutions. This alternative way of obtaining financing makes sense for many, but there’s quite a lot to consider when looking into private money lending, such as how to find a private money lender that best fits your needs.
Let’s explore the essentials you need to know, starting with what a private money lender is, how to find one, and how to build a relationship to meet your long-term goals.
Private money lending belongs to a lesser-known lending sector, so before you look into your options, it’s essential to understand how private money lending differs from traditional financial institutions.
A private money lender is a non-institutional (in other words, private) person or entity that provides loans to businesses or individuals. The purpose of the loan is often to provide cash for a business or to buy properties to flip or rent.
Getting a loan from a traditional financial institution can often be a long, drawn-out process filled with delays between the approval process and funding. Standard requirements for risk profiles and financing terms can make loans inaccessible to some borrowers because of strict credit score thresholds. Because of this in addition to flexible financing terms, a streamlined application process, and a shorter repayment schedule, private money loans can be ideal for some borrowers.
Whether or not you already have a few private money lenders lined up, you need to know how to vet them and decide which lender to work with.
It’s incredibly important to identify your needs so you can find an appropriate solution. If you haven’t solidified what you’re looking for, it can be difficult to find a lender who meets those needs.
For example, your motivation for seeking a private money lender over a traditional financial institution may include purchasing investment properties, business ventures, or having a financial profile that doesn’t fit a conventional model.
Researching and comparing several different lenders is a key part of ensuring you’re not wasting your time and finding the right lender for your needs. Research each lender you’re considering and what their requirements are for loans. One of the most important things to do is look up reviews and read them to make sure they can meet their claims.
Prioritize lenders that can best fit your needs and consider if they specialize in the loan type you require. The right lender will also be willing to take the time to answer your questions, give you advice, and find the right solution for you. They should be well-established and have the expertise to support you and not only their own interests.
The criteria that you should consider when evaluating your lender options include interest rates, loan terms, reputation, and flexibility. You may come across higher interest rates and higher closing costs among private money lenders. This is because private lenders are willing to lend to borrowers who may not meet the requirements that traditional financial institutions require. To mitigate this, make sure you take the time to consider whether these disadvantages are worth the benefits of quick access to capital.
Depending on what you’re using a private money loan for, chances are that you may need additional loans in the future. Because of this, there’s a lot of value in establishing and nurturing a relationship with your private money lender for future financing needs.
To help find a lender that you can build a lucrative relationship with, we recommend consulting with financial advisors or experts in the field for additional guidance. Look beyond your immediate financing circumstances to consider which lender will best fit with your long-term real estate goals. A collaborative, reliable working relationship with a private lender is a significant asset.
Taking your time to do your research on lenders to find the right fit for your current and future needs is essential. Before agreeing to a loan, make sure you thoroughly understand the terms and conditions.
As a private money lender since 1975, Val-Chris Investments understands the importance of personal service that fits the borrower’s needs first and foremost. We’ve compiled this experience into our Hard Money Loan Handbook to help borrowers find the right lender at the right time.
As always, if you have any questions about private money loan servicing and want to speak to a team you can trust, contact us today.