UNDERSTANDING SOME BASIC FACTS ABOUT PRIVATE MONEY can make all the difference between getting the money you need for business and real estate or not getting it. This is especially critical if you want to work as a financial broker or business loan broker.
BELOW YOU’LL FIND INFORMATION THAT CAN INCREASE YOUR CHANCES of getting private money funding.
WHAT MAKES A LOAN A PRIVATE MONEY LOAN?
- Private lenders may be individuals, corporations, venture capital firms, limited partnerships, commercial finance companies or certain other types of business entities.
- Traditional institutional lenders like banks, trusts, pension funds, or credit unions are not private lenders, although some have units that deal with private money.
- Private money loans are typically non-conventional commercial real estate loans secured by real estate. They are often called hard money loans. In addition, many commercial finance companies offer private money loans such as asset-based loans for business.
- Hard money lenders make private money loans. Many private money lenders make hard money loans.
TWO MAIN TYPES OF PRIVATE MONEY FUNDING ARE:
- Loans for business or real estate , which must be paid back over time
Hard money loans are a common type of private money loan. They typically have less stringent eligibility requirements, shorter terms and higher interest rates than traditional bank loans. Asset-based loans from commercial finance companies are another type of private money loan.
- Investments in a business or real estate project, which do not have to be paid back.
Investments come from wealthy private individuals (“angels”) or groups such as venture capital (VC) firms. Investors may take part ownership of a business to earn a return on their investment as the business grows.
POTENTIAL ADVANTAGES OF PRIVATE MONEY include:
- Private lenders are less bogged down by bank paperwork, government regulations and institutional protocol
- Time from initial loan request to funding is faster
- Private money loans are more flexible. For example, private lenders and investors are more likely to offer funding to “high risk” business or real estate deals.
BORROWERS CAN USE PRIVATE MONEY LOANS for many business and real estate purposes, although lenders can restrict loans to specific uses. Common purposes of private money loans include:
- Rehabbing a property
- Acquiring bridge money
- Providing short-term operating capital
- Equipping an office or research facility
- Making a down payment on real estate
- Buying real property
- and more
Business Angels are wealthy individuals who invest a portion of their money into real estate or a business in the hope of making a good return on their investments. These investors may come to the rescue of a new and promising business that finds it hard to obtain financing. They generally seek companies or projects that:
- Show great profit potential
- Will grow fast
- Are more than small “mom and pop” types of businesses