I would like to ask you a question this morning. What is the difference between hard money lending and private lending when it comes to getting a personal or business loan?
When it comes to money lending, people think of banks as the standard institution for getting personal or business loans. However, banks have their set of rules and criteria for an individual to get a loan. Moreover, a bank is not the ideal place for you to approach if your loan amount is small. It is here that you need to go to money lenders that give you small amounts of loan easily. This is when people who are looking for loans that are free from stringent eligibility criteria turn to private lenders in the market to get the loans they need.
Know the difference between hard money lending and private lending
If an individualwants to take a loan or even create a business in the field of money lending, it is prudent for both of them to know the difference between private money lending and hard money lending. For the individual, the good news is there are private money lenders that give you loans against poor or no credit. These loans are generally sanctioned in a few hours to days. However, if a person wishes to start a money lending business, there is a huge element of risk involved. So, here the person needs to ensure that a safe system is implemented so that the payments are made on time. At the same time, the person should also manage late payments effectively for those people that default on the repayment of the money. There has to be an organized collection system in place so that the business owner in the field of money lending faces no losses.
When it comes to hard money lending, you find they work with third parties that are in the money lending broker business. They are responsible for designing the loan structure for the clients. Here, the risks are less, and the out-of-pocket expenses are few. The hard money lender works with brokers that refer clients to it when he/she does not fit the conventional eligibility of loans by banks and other traditional lending institutions. The referrals in this business generally come via accountants, banks and capital investors.
How does private money lending function?
Private money lenders use their funds to give out loans to people. However, you should note they enjoy better returns on investment when they give out these loans. Most private money lenders in the industry offer loans to people for the purchase of bonds. Here, the client requests for the loan and the moneylender gives them the amount they request for. There is generally an agreement between the two. This agreement is when the project of the client matures, the money lender gets a return on the investment made initially as well as a mutually agreed interest for the period of payment that is generally conducted over a duration of years.
Note that private money lending might appraise the collateral a client puts up against the loan requested. If you are interested in approaching a private money lender for a loan, you should check the collateral appraisals with at least two to three other sources before you make the final choice. You should ensure that the appraisal is more or less the same when compared to the finance being lent.
Esteemed name in the field of money lending in the USA, https://www.libertylending.com/ states that private money lenders have to abide by insurance policies as well in the state. This means private money lenders have to check to see whether the assets of their clients are insured against accidents like fires and that they hold liability insurance. When the loan is being structured, the client needs to add the money lender to it and information of the same should be conveyed to the insurance company. In case, if something does take place to the collateral that is being used as an asset, its reimbursement will be sent to the money lender whose name is added in the insurance policy document.
How does hard money lending function?
If you compare hard money lending to private money lending, you will find that the former has lesser risks involved. However, you should note that hard money lending has its own set of rules as well. Hard money lenders should have a good rapport with accountants, capital investors, loan brokers, and other future clients. They are like puzzle solvers where they need to bring funding parties to the table so that the loan can be structured effectively for the client.
You should note that hard money lenders provide the flexibility to offer long-term or short-term finance to the client. The short-term loan generally carries a higher fee structure as the client needs the capital immediately and so the interest rates are higher as well. The long- term loans offer clients a stable profit over the years.
Besides the above, hard money lenders should work with legal professionals and be aware of the lending laws of the state. They should also be informed about the federal laws that pertain to the lending laws and regulations in the nation. Experts in the field state that most hard money lenders work with other hard money lenders to be familiar with the process of underwriting so that the other investors, as well as the money lender, get paid.
Factors that both hard money lenders and private money lenders should note
Both hard money and private money lenders should document every detail of their loans no matter how minute they might be. In case, the loans are not finalized, it is prudent to keep the portfolio of the loan in hand so that clients can come back in the future if needed. Experts in the above field state that when it comes to money lending to clients, no information is too much!
Last but not least, it is not wrong for money lenders to expand the radius of their operations when it comes to geographical locations. When a money lender expands geographical location to clients, more and more potential customers can apply for loans leading to further business development and growth.
Thank you,
Glenda, Charlie and David Cates
