How Private Money Lenders Work

Who can you consider as a Private Money Lender?

Private Money Lenders are individuals or companies that offer loan or funding solutions to people who need quick financing.

They are non-institutional lenders that provide short-term loans to enable borrowers to buy or renovate an investment property.

Those who are unable to apply for loan in banks or other credit unions can turn to private lenders.

Basically, there are three major forms of Private Money Lenders which are as follows;

Your family makes up your primary network. If they can offer you funds for you project, you can expect the best terms from them so you can get started.

Primary Network

Consists of family and close circle of friends

Secondary Network

Consists of secondary contacts such as friends of friends, colleagues, friends of colleagues, professional connections and other personal acquaintances outside of your primary network

Tertiary Network

Contacts which you are yet to develop such as accredited capital investors, hard money lenders, fix and flip lenders and portfolio lenders

How Private Money Lenders Can Help

Since private lenders come in three forms, it is expected that each one would work differently from the others.

Loans from Primary Network

Your primary network makes up your primary circle which includes your closest friends and family members.

If you acquire a loan from them, chances are that they won’t hammer you with high interest rates and strict terms.

The agreement will most likely be based on trust and confidence. However, you are literally putting your relationship on the line.

It is, therefore, highly important to protect your relationship at all cost by respecting your agreement and by keeping your end of the deal.

Loans from Secondary Network

Your secondary network is usually backed-up by your primary network.

You might find yourself name-dropping a primary contact in an attempt to win over the interest of a secondary contact.

Borrowing a capital from this network is quite challenging because it takes a certain amount of effort and a really good proposal that’s “hard to resist” in order to sound convincing.

You would also need to prepare a presentation to make your project appear more appealing and plausible.

Ideally, it is best to ask for help and support from your primary contacts to explore your secondary network.

A well-defined agreement with a clear proposal for loan settlement can help you convince your secondary network to say “yes”.

Since this network consists of your extended contacts, they might not demand a great deal of interest from you.

However, prepare to have collateral just in case they ask for an assurance or guarantee.

Otherwise, with the help of your primary contacts, you might just land on a flexible deal that’s manageable to keep and won’t put a lot of pressure on your shoulders.

To increase your chances of getting approved for quick funding, prepare a good proposal and learn how to negotiate your own terms.

Loans from Tertiary Network

Tertiary network or tertiary contacts are usually the hard money lenders you often hear and read about.

They are private lenders that offer short-term loans for investors who are flipping houses and those who are doing home rehabilitation projects on certain properties.

Hard money lenders usually offer quick funding and outright cash-out financing.

They can be people that you know or private lending companies which are also known as “relationship-based lenders”.

If you’re considering on getting funds from tertiary contacts, you must be aware that the loans are typically secured by a real estate asset.

If for some reason, you are unable to settle the loan or you’re having difficulty keeping your end of the deal, you can lose your asset.

Still, this would depend on what’s in your contract or what you’ve agreed upon.

Capital loans secured from hard money lenders usually have high interest rates. That’s how they make money from loans.

Interest could range between 10 and 15% and could go as high as 20% depending on the risks involved, flexibility of terms and length of payment.

Private money lenders are not difficult to find. They can be found online, from real estate websites and various MLS websites.

Where to Find Hard Money Lenders

You can search online or through various real estate websites and MLS to find private money lenders that offer fix and flip loans and bridge loans.

Some hard money lenders also offer other forms of capital financing besides bridge loans and fix and flip loans.

These include other business ventures and personal investments.