The Basics of Private Money Loans
Sooner or later, a business or person can run into a situation where they need financing, but cannot get it from traditional sources. In this article, we take a look at the basics of private money loans.
A private money loan is one that is made by a wealthy individual or institution to a person or business in need. In general, these loans tend to be considered riskier then traditional loans and also have a shorter term. In exchange for this risk, the loans cost much more than traditional loans in that they come with points and higher interest rates to make the deal worth while to the party lending the money.
The guidelines for private money loans are such that, frankly, there really are none. This is because the money is not regulated. The private money lender usually looks at a case by case scenario and then makes a decision. In some cases, the nature of the deal is such that the lender may want some collateral. In other cases, the same lender may not.
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When are private money loans appropriate? The answer is fairly simple – whenever traditional funding sources do not or will not fit your financing needs. The credit crunch of 2008 and 2009 is such that many banks simply are not lending money. If you need financing for a project, you must look around for an alternative form of funding. Private money is one way to do it. Instead of losing the project, you can get a five year loan to ride out the credit crunch. Yes, it will cost you more, but it is far better then losing the total project.
The real beauty of private money lenders is the nature of their willingness to take on risk. Every deal they look at has elevated risk from one aspect or another. Unlike a traditional bank, they are willing to look past the risk and evaluate the merits of the deal being successful enough for them to recover the money loaned. In short, they won’t say no without really considering the proposed financing package.
Is private money for everyone? Of course, not. It is a specialized form of financing for specialized situations. Apply now to find out more.