Guide to Private Money Lenders

How Private Money Lenders Provide Funding Solutions

Are you wondering where to get funds for your next investment? Would you like to explore alternative funding solutions other than banks and credit unions?

Allow us to help you!

If you’re looking for various funding methods for your next big project, we at can guide you through other options that you can consider.

Allow us to introduce to you the idea and concept behind Private Money Lenders.

This is one of the broadest, quickest, and most flexible financial solutions used by a lot of investors in the real estate field.

Private money lenders serve as alternative to conventional loans. They can provide quick funding solutions when bank loans are not an option.

We Can Help You Understand How Private Money Lenders Work

Our team can walk you through the ins and outs of private money lending including some of the technicalities that you need to understand prior to signing an agreement.

It is important to become aware of the mechanics and guidelines of Private Money Lenders which are different from that of banks, credit unions, and wholesale lenders.

By becoming fully aware of what goes hand-in-hand with such a form of funding, you can make the necessary adjustments to comply with the terms.

This can help you manage the risks effectively so you can avoid any problems associated with you loan.

Private money lenders can be people that you know such as family members and close friends. They can also be extended contacts who provide loans for various purposes.

What a Private Money Lender Is

A Private Money Lender refers to a non-institutional person or company that provides loans for various purposes.

This could be a person you know such as a family member or a friend; or a private sector that provides funding for investments in line with real estate.

Private Money Lenders are not in any way connected to a bank or credit union. Their source of funds could be from their own personal account such as savings.

For others, it could be their excess money which they are willing to loan to someone they believe they can trust.

In most cases, they secure such transactions through a note, agreement, or deed of trust.

Based on the term itself, “private lenders” are usually based on relationships or guaranteed by their relationship. This is what sets them apart from hard money lenders.

Explore your network to identify who you can consider as your primary, secondary and tertiary contacts.

Private Money Lender Network

There are 3 basic networks that you can consider as private money lenders.

They can be categorized as your primary, secondary, and tertiary (or extended) networks. Here are the main differences;

Private Money Lenders: Primary Network

Your primary network consists of your immediate family members and closest friends. Some extended family members can likewise be a part of this network.

A lot of real estate investors go to their family and friends to discuss their need for funding.

The reason is that it is easier and comfortable to turn to people whom you know believe in you and has confidence in you.

And because these people know you best, there is a better chance that they would support you in your endeavor.

Your family is your most reliable ally for your financial needs. They are also the ones whom you have the strongest relationship with. This makes them part of your primary network.

Borrowing Money from Family and Friends

There are quite a number of setbacks that can come from acquiring funds from family and friends.

For the most part, they are not very much knowledgeable in identifying what makes up a good deal and what makes up a bad one.

This can potentially lead to issues later on and may even affect the relationship.

Therefore, it is best to practice transparency and honesty when taking funds from your primary network. You have to make them aware about the risks involved as well as other problems that could possibly happen.

We highly suggest that you only take capital from family and friends who can afford to lose the money. You have to make sure that in any case, things don’t go as planned; your relationship will not be affected.

The last thing that you would want to happen is to fail in your endeavor and lose important relationships all at once.

Therefore, no matter how certain you are, you have to be honest with how you intend to spend the money they’re loaning you.

Maximizing Borrowed Funds

The amount of money that your primary contacts can offer you may or may not be enough to get your business rolling.

For instance, if you’re into the real estate fix and flip business, you can start using the funds to initiate the first phase of the restoration.

Since you’re working on a budget, you would need to contact water damage restoration miami specialists that can address all structural issues of the property.

This can help you maximize and stretch your borrowed money until you find another funding solution.

Alternatively, you can also consider using your borrowed money to gather more relevant resources or to make quick-term investments that can help you become more financially-ready to get on into the next stage.

Another way to maximize your funds is by searching for an investment that matches your current resources. Look for a Miami real estate agency that provides the best deals.

This may be an additional job for you since you would need to canvass for a suitable property. However, spending within your means can save you a lot of trouble and can lessen the pressure from your end.

It is important that you become honest with your friends if you intend to borrow money from them. You have to discuss with them the risks associated with your project.

What to Expect When Borrowing Money from Your Primary Network

You have to understand that your family members and friends may not be capable of funding the entirety of your investment.

However, you can turn to them for the initial source of funds to help you get started. The initial funding can give you a good head-start.

It can also open other opportunities for you to come up with more plans so you can acquire more funding from other sources.

Private Money Lenders: Secondary Network

Your secondary network consists of your other friends, colleagues, and friends of your current primary network.

This network can be considered as a bigger capital pool because there are more people who can be a part of this group.

This category of investors is comparable with how social networking works. You start with friends, and then your colleagues, followed by friends of friends and friends of your colleagues.

Along the way, you discover some common friends and acquaintances. Before you even know it, you are actually establishing connections with people you know to some extent.

Your colleagues and friends of colleagues are all part of your secondary network.

Acquiring Funds from Your Secondary Network

Your secondary network depends on your primary contacts. Borrowing money from them or asking them to invest in your project is usually backed up by your closest friends and family members.

Therefore, the wider your primary network is, the more extensive your secondary circle of investors can be.

This is a huge advantage to those who have big families and lots of close friends as well as to those who have a wide social network.

Acquiring funds from your secondary contacts is your second best option if you want to raise capital for your business or investment.

This group will likely be more interested in your proposal if your primary contacts had strongly backed you up.

A nod of approval from your primary contacts coupled with their support can help you gain more funding from several secondary sources.

What to Expect from Funding by Secondary Network

The level of trust and confidence you can get from your secondary network depends on the kind of relationship you have with your primary network.

Ideally, you must have a concrete plan that you can present. It’s much better if you have already initiated your project because it makes the idea more plausible to your secondary contacts.

You can also come up with a good proposal – one that is hard for them to resist. This can give them some motivation.

Having funds from your secondary network will allow you to raise equity for your investment. This is after locking up a deal using the capital you have acquired from your primary network.

However, there is a downside to working with your secondary contacts.

There is a chance that it would take longer for you to get funding from them since they don’t know you on a personal level. They are less likely inclined to nod their heads easily.

To acquire funding from this level of contact, prepare yourself to answer several questions from them.

It is also advisable for you to prepare a presentation and to take some time to meet them for lunches and dinners.

This will enable you to establish rapport with them so you can do business together with more trust and confidence.

Acquiring a loan from your secondary contacts can be very challenging. It might be harder for them to provide funding if they are not convinced about your proposal.

Private Money Lenders: Tertiary Network

Tertiary investors are actually individuals that you do not know yet.

They could be people that you would find in an advertisement, some accredited investors, complete strangers or people you meet via networking.

In most cases, this level of contact is made up of business investors who are not yet part of your social circle. This means that you don’t have personal relationships with them.

You can consider your tertiary network as the biggest and widest capital pool that you can explore. However, it usually takes a longer time to convince them to become capital partners.

The question is; where can you find these people which you can consider as your tertiary capital investors?

Exploring your tertiary network can help you find potential investors who are willing to offer funding for your projects.

There are two areas which you can explore to build your tertiary network and find potential investors for your business.

The first one is through investor contact websites and the second one is via investor direct mail list.

Investor Contact Websites

There are several websites that feature private investors such as Lending Club and Bigger Pockets. You can try posting your investment opportunity on their website and contact third-party capital investors.

Make sure to choose the ones that abide by the federal and state rules and regulations of the Securities and Exchange Commission.

Investor Direct Mailing List

A resourceful way of establishing a connection with potential capital investors is by way of direct mailing.

You can start searching for a list of brokers like Click2Mail to find a list of investors that match your criteria in terms of median household income, responsiveness, and net worth.

Take the time to search and establish an investor direct mailing list that you can maintain.

A direct mailing list can help you gain an alternative source of funds for your projects and investments.

Be patient about sending out emails because it usually takes time for capital investors to reply.

Make sure to come up with a professional letter and an interesting proposal. Lastly, constant follow-ups may be necessary to maintain contact and trigger recall.

Private money lenders offer quick funding compared to banks that usually takes weeks to months before they come up with a decision.

Why Borrow Money from a Private Money Lender?

Private Money Lenders can either provide short-term or long-term loans depending on what is on the agreement.

Individuals who, for some reason, do not qualify for bank loans usually turn to private lenders to cover their urgent financial needs.

Individuals who require quick funding solutions can also turn to private lenders for a short-term loan.

Examples of these are investors who are flipping houses for profit and homebuyers who need bridge loans for immediate funding while waiting for a permanent financial solution.

If you need expert advice about the risks, there are many specialists you can approach.

Try consulting real estate agents within your neighborhood, experienced marketing experts, public adjusters miami residents might be aware of and various loan providers.

Terms and Interest Rates Vary for Different Primary Lenders

In general, private lenders offer more flexible terms compared to banking institutions and credit unions.

If your source of funds is from close friends and family members, chances are that you won’t even have to pay for interest due to your existing relationship with them.

If it’s from other friends, it would all depend on what you’ve agreed upon or on specific conditions.

And if the capital is from a tertiary contact, the loan is usually bound by an agreement or contract which indicates the rates and loan terms.

Capital lenders tend to offer various types of short-term loans. Interest for hard money loans and bridge loans is usually 10-15% depending on the risk.

Bridge loans require 20% equity and thrive in fast-moving markets. In most cases, collateral is involved in the transaction.

Private money lenders do not require a lot of documents and paper works unlike banks and other credit unions.

Factors That Make Private Money Lenders a Good Choice

1. Flexibility and Few Requirements

Private Lenders are more lenient when it comes to lending money.

There are usually few requirements and restrictions aside from good communication and agreement on certain aspects.

2. Poor Credit History is Usually Not an Issue

Unlike banks, they don’t conduct credit history checks and background checks.

They rely solely on your credibility and drive (or character) as a person and on how attractive and promising your investment venture is.

3. Personal Relationship Matters

Trust, confidence, and solid connection are the most vital elements for private money lenders.

Therefore, these are the ones that you must establish first to increase the chances of gaining funds for your business ventures.

For Questions and Inquiries would be happy to answer your queries and concerns about Private Money Lenders.

We have chat lines that you can call during business hours from Monday to Friday. Just dial (786) 874 5583 and our service representatives would be more than happy to assist you.