What is Private Money Lending?

By definition, private money (also known as hard money) is used in regards to finance and banking – lending capital to an individual or company by a private individual, company or organization. 

Private money lending groups assess how they can assist small-medium sized businesses with different types of working capital. This looks different with every client that they have, every business that they help.

How Could this Work for You?

There are a multitude of reasons to looks into a private money lender for financial assistance, especially in today’s world with rates going up, harder to get a loan from the banks, the market tanking and the simplicity of it. 

If you are sitting around saying to yourself “if I had this amount of money I could do x, y, z for my business” – you are the prime client to a private money lender. Whether you have a product that you want to bring to market, get into a retail store, fulfill a contract of sorts or even the federal government in need of a bridge loan, working capital or working finance – you could find great success using this type of loan.

Who is Using this form of a Loan?

Everyone from startups, small businesses, people involved in real estate, franchised businesses, the government and partners trying to buy out another turn to private money lenders. “All challenges that real people face and the type of financing that we do solely relies on looking forward and their goals,” Avi Levine, StarFunding Inc.

• The single mom who started her own makeup business out of her house, just got her first order from a boutique and needs help financing it.
• A minority owned business that is having trouble getting things up and running because of poor credit. 
• People who buy and flip houses and need the money to assist putting a down payment on a house. 
• Medical supply companies selling masks to the government and needs the capital to front the cost of the production.
• A company that’s around for 25 years wants to buy out a partner but that partner is pulling cash out of the business, so the remaining members needs to get money to handle the lapse. 

Lenders can tend to place more of an emphasis on the value of what the money is going towards rather than the credit of the person seeking the loan, although credit goes into consideration as well. 

What is a Hard Money Loan?

A hard money loan, by definition is a short term loan that is secured by real estate and funded by private investors instead of the typical, conventional leaders like credit unions or banks. 

In relation to real estate, the loan is secured against the piece of property the money is going into and is used as collateral. 

Hard Money Loan Payments

How much is given to the person/ group seeking the loan is based off of the value of project, property or product for which the loan is being secured for. The time of term for the loan will vary from deal to deal. They can be as short as one to six months or also as long as five plus years. 

Typically, there is a required monthly payment that consists of interest only; there could also be payments of interest with a certain amount of principal, followed by a balloon payment at the end. A balloon payment is an inflated one-time payment that is owed after interest-only payments have been paid over the loan’s lifespan. 

When are Hard Money Loan’s a Viable Option

In simplest of terms, when one is in need of a loan in a short amount of time, having a difficult time getting a loan through the traditional route or having other complications.

Hard money loans could be used on a number of properties: single-family homes, multi-family properties like apartment or condo complexes, commercial real estate, industrial real estate, as well as vacant land. 

They are ideal for situations like: 

• Fix and Flips/ Rehabbing a home
• Land and Construction loans
• Present/ Pre-existing credit issues
• If a real estate investor is in need to act quickly 

In contrast to receiving a conventional loan, while a credit union or bank could take one 30-45 days for a loan; when using hard money loan the time frame is much quicker usually being 10 days or less. The application per loan is also substantially quicker with only taking a day or two to complete and hear back. 

Rates and Risks

You should expect different interest rates and loan-to-value with getting a loan privately than you would if you went through with receiving a conventional loan. This is due to the fact that there is more risk on the lenders end. One should expect lender’s to have on average a 7-12% interest rate. However, with the ever changing market and inflation; along with taking into consideration risks and factors those rates could be higher or lower depending on who you are borrowing from/ what you are borrowing for. 

Getting Started

 If private/ hard money lending is an avenue that could positively impact your business’s success – you should click the button at the top of this page and set up a time to speak with our President, Aaron Levine or give us a call today at 877-288-7169 to further discuss.