This money generally comes from private investors who want to make hard money loans to individuals that need them while still making a return on their capital. These sources could be anyone from just one individual, a group of investors where each person invests a portion of money into your hard money real loan, or a group of private investors that work with a commercial lending manager or a loan broker to let qualified borrowers obtain the loans.
PRIVATE LENDING FAQ'S
There are many questions people have about private lending loans and the lenders they can obtain these loans through. Here are a few of the most frequently asked questions:
When is the best time to use private lending?
You might consider obtaining a hard money loan instead of a traditional bank loan during a time where having access to capital quickly is crucial for your business or project. However, getting this type of capital comes at a higher cost than if you were to get a bank loan, for a two main reasons: The investor (or group of investors) providing the loan to you is looking for a better return than they can get in the bond market or a savings account.
Also, the more risk the investor takes, the higher the interest rate will be depending on the amount of loan and what it’s being use for. But remember, everything is negotiable and in the end it’s up to the lender to find an investor who is willing to accept the risk of the borrower’s project.
Why do I feel private lenders can be considered to be “shady”?
You’re not the only one who has felt this way. Over time, there have been a number of bad apples in the business of hard money lending. Because of them, a negative stigma can be associated with hard money lenders. However, the industry has evolved over time, and now there are many good and reputable lenders that you can obtain this type of loan through.The key to distinguishing good lenders from not only poor lenders, but also scam companies, is knowing the right questions to ask a lender you’re interested in working with. Don’t let the stigma scare you! There are plenty is new private money lenders and companies who are well-trained professionals with the best interest of borrowers at heart.
This lending industry has seen a significant change during the last ten years or so, and a great amount of cottage industry professionals have emerged who work as a conduit between the private money investors and borrowers that are looking for funds for real estate projects such as bridge loans, commercial lending, land loans, and many more.
Why can’t I just go to a traditional bank lender and get my deal done?
You can definitely go through a bank lender. However, banks typically require not only strong collateral for the loan, but a proven history of exceptional credit and cash flow as well. Furthermore, banking institutions may not work as quickly as a private lender would, delaying the time it takes to process your request and to get the requested capital to you. Hard money lenders are basically the opposite of bank lenders. They offer more flexibility and focus mainly on the collateral for the loan. They also have the ability to fund a loan quite quickly – which is a huge benefit depending on what your loan is being used for, such as being in the middle of closing a time-sensitive real estate deal.
Isn’t private lending only for desperate borrowers?
Nope, not at all! This is another myth about hard money loans. There are many people with the need to borrow money and either the situation or who is borrowing doesn’t fit the traditional lending mold, and hard money loans are just better suited for them. Hard money can be a preferred means of financing these situations for some and allows real estate investors to invest in multiple deals, instead of just one.
Are private money lenders out to steal my property?
A good, reputable private money lender has no desire or need to take your property from you. The lenders benefit from and earn their living by servicing your loan on behalf of their investors. If they were to take your property, their income of 0.5% to 1% of the loan amount per year would stops. Their goal is to keep you in the property, not take it away from you.
Where do I make my payments?
You will make your payments directly to the private money lender who arranged your loan for you or to a separate servicing company. It depends on which lender or lending company you decide to obtain your loan through.