Borrowers and Lenders – What Is Involved in Private Money Lending


Borrowing money for business or personal purpose is not new. It has been around for thousands of years but the lending process, needs, and volumes have changed over time. A constant funding is required especially for any business to run its operation smoothly. However, individuals also require loans from time to time to purchase a product or home.

Loans drive the nation’s economy as without loans businesses will cease to exist. Unfortunately, there are several honest and capable entrepreneurs who never get a chance to establish their business simply because they do not have the required money and capital.

Getting a loan from a public lender may prove most challenging. However, there are other alternative sources for borrowing money. These are the private money lenders who can loan you the amount desired just like any public lender.

These sources are equally good and safe provided you know the basic premise and follow the strategic process to obtain a private loan. Whether it is for your individual investment or your business needs, you must be knowledgeable about the pros, cons, and consequences of taking out a loan from any private sources. This will save you from being conned and keep you out of legal and other hassles. Therefore, when you click at or any other site make sure you are confident and know what you are entering into.

A Blessing In Disguise

If you procure, use and repay your loan wisely and on time you will be able to enjoy the benefits of it.

  • Private lenders are a better source than your credit cards and others as the rate of interest charged by them is much lower than credit cards. However, there are lots more to these private loans than it actually meets the eye.
  • Private lending or hard money lending is a blessing to the private investors looking for alternatives to the bond, shares and stock markets. There are more opportunities in private lending provided if you know and understand the fundamentals.
  • It is also required that you perform due and adequate diligence with every deal. This will help you to earn solid returns and minimize the risks that are usually associated with private money lending.
  • You will get better and faster returns in private money lending as compared to buying and selling of stocks. All you need is a little more knowledge and effort and have a bit more patience.

It is also required that you have proper focus and put in some effort and time to learn how the process works and to keep your money safe. Lending money is a game but to make hit a home run every time you bat is not easy and needs care, caution, and attention.

Know The Risks

At the heart of private money lending, you must know that it is not the same as investing in any bond or share that will promise a fixed return and will pay off at maturity. Ideally, a lot depends on the person you lend the money. If the borrower does not default then the loan amount will pay off at or before the maturity date. At the same time, the original principal invested will be returned.

A Tip To Follow

If you are making a loan to a real estate investor who is in flipping property, you must offer an amount of the total project cost that includes the acquisition of property and the cost of renovation only if the person offers a 20% down payment.

This will ensure that you involve the investor in the game as well and provides you with the desired due diligence.

As for lending money to others make sure you research well before lending. Such efforts will enable you to discover a few important and contributing factors. These factors will make your private lending investment much more involved and secured as compared to any investment in bonds. It all depends on how soon you can master these techniques to have a win-win situation always.

The Factors To Consider

To make the best of private lending just like the big names in the industry and others you must consider a few factors for lending.

  • Consider the liquidity factor well and truly before you indulge in private lending. Even if most loans are known to pay off, there are high chances that it will not pay off just as expected.
  • Keep this in mind that performing and non-performing private money loans are usually sold at a discount. Therefore, you must be prepared to take a cut on the amount of capital returned.
  • Collateral valuation is necessary to mitigate risks in a hard money loan. Evaluate the collateral carefully using several sources to arrive at an accurate and logical valuation. Drive the comps yourself and take the appraisal of the property put as security. Do not rely on photos and images but visit the property firsthand.
  • There are a few loan investments that may require the lenders to advance additional funds for several reasons such as to hire an attorney, cure the delinquent property taxes, make payments to defend bankruptcy claims, cure a senior lien position or to remodel or renovate the property in case a foreclosure occurs.
  • Always leave a cash cushion for you when you invest in hard money loans. Do not be more creative than it is required and follow the conservative approach to leave plenty of liquidity in your personal finances. This will enable you to deal with unexpected circumstances.
  • Follow Murphy’s Law when you indulge in private lending and believe that anything that might go wrong will eventually go wrong.
  • You must check and obtain title insurance as that will ensure your lien position as a lender. A title insurance is an indemnity policy where you are reimbursed for a proven loss only and not for any potential loss.

It is also required that you review the capacity of the borrower. You must make sure that the borrower is able enough to pay off the monthly bills. Check the past credit track record as well.