What is Private Lending
11 Apr 2024
Posted By Admin
If you are a real estate investor who needs immediate capital or if your project doesn’t match the conventional lending parameters, then private lending is for you. Today, in this blog, we will discuss private lending and how it is beneficial for real estate investors.
What is private lending?
It is funding given by sources not defined by ‘public lending institutions’. These lending institutions are mortgage companies, banks, credit card companies, and other conventional financing sources. Thus, you can call private lenders an organization or individuals that lend money outside of the traditional financial services.
Difference between private lending and conventional lending
The primary difference is private loans are based on assets. That implies when you apply for a loan from any traditional lending institution, the amount of the loan will depend on your personal financial history. On the other hand, the decision of a private lender will depend on the viability of your underlying asset. For instance, in the case of a real estate loan, the private lender will evaluate the market value of the property for which you are taking a loan, determine the equity of the property, and calculate the property revenue potential after completion. Hence, private lending is also known as ‘hard money lending’. Here, the “hard money” doesn’t indicate that it is challenging to raise capital; but rather that the loan is disbursed considering your hard asset such as your real estate property. The second difference between traditional and private money lending is that in private lending, money is given for a short duration. In conventional lending institutes, the loan is disbursed for a longer duration, for example 15-30 years. Although the interest rate of private money lenders is higher, many fix-and-flip property investors prefer this loan as they can attain and repay it quickly. The capability of private lenders to disburse capital is quicker than conventional lenders, thus it making it an attractive offer for investors who need the amount in a hurry.
Why borrow from a private lending firm?
It seems traditional to borrow money from conventional finance institutions. However, many real estate investors fall outside the parameters set by these conventional lending firms. In such conditions, real estate investors go with more flexible and non-conventional funding options. Below are two reasons why private lending may be a better option for you.
Private lenders disburse loans quickly.
As these private lending institutions are not classified as public by federal regulators, private lenders don’t experience the same type of red tape as conventional mortgage companies or banks. Only because of this red tape the amount disbursement gets delayed from the traditional bank lenders to the real estate borrowers. The absence of red tape for private lenders makes it possible to provide the loan quickly and calculate the cost of the underlying asset for which you are securing the loan. When you want the funding quickly for the next stage of construction of your complex commercial property, getting easy financing from private lenders can protect you from the loss you may bear due to the delay in disbursement by conventional money lenders.
Private lenders give priority to assets instead of the financial history
Conventional lenders check the overall financial background of the borrower. They give priority to many financial details like credit scores, income history, debt, assets, etc. This implies if you don’t have enough credit history or don’t have enough assets to show it to a traditional lender’s team, you won’t be able to get the loan for your real estate investment project, even if your project is demonstrably viable. Here enters the role of private lenders. These lenders also look for solid credit scores and financial histories, as they are lending their own capital trying to reduce the risk as much as possible. However, private lenders also focus on the asset for which you need money. They calculate the inherent value of this asset to reduce loss from default.
Simplending Financial- A leading private money lender
Here at Simplending Financial, we help real estate investors by providing capital for their investment properties. We are known for our excellent customer service, with dedicated loan officers who can guide you through the entire funding process. We are here to provide tailored solutions to meet your needs when closing loans.
We offer four loan products for our customers.
SimpleFlip: This product is for customers interested in buying distressed properties and flipping them for a profit.
SimpleBuild: This product is for home builders who want quick funding for their new construction project.
SimpleRent: This product is for landlords who are looking for passive cash flow.
SimpleBridge: In this product, we finance investment properties that require fast closure with no or minimum rehab needed.
