Private lenders are supposed to be an integral part of any financial set-up in a society. Many individuals when faced with financial crisis often turn to private moneylenders because it is easy and convenient to do business with them. Hard money loans from reliable private lenders could help you out of financial emergencies.
Many people use loans for purchasing real estate, they usually start seeking assistance from conventional lending institutions such as a bank for getting an approval for the mortgage loan. But a bank loan may not be the right option for all borrowers even though the interest rate seems to be much lower.
First of all, banks are often crippled by red tape that would surely slow down things for a high-flying real estate investor. Moreover, numerous self-employed people have issues obtaining finance when the tax returns demonstrate quite a lot of write-offs. There could be certain credit-related issues that could further delay the loan approval process.
If you are not able to obtain a conventional loan because of a bad credit history or poor credit rating, or if you are being denied approval because of the kind of property you are thinking of buying, it is best to seek a hard money loan from a reliable private lender. However, it is a wise idea to learn about the benefits and drawbacks of borrowing money from a private lender.
Private money lenders are supposed to be very much interested in your asset as compared to a perfect income or credit score. Moreover, they concentrate on investment properties and so they are able to aid an experienced investor in easily acquiring value-added and distressed real estate deals pretty quickly. Whether you are thinking of purchasing rental units for overseeing, flipping houses, or building a strip mall, no banks would be interested at all in financing all these sorts of ventures. This is where the private lenders enter. Identifying a reputed private investor online could be an easy affair. You must browse through the BBB’s official website and choose only a BBB-approved money lender for ensuring a good experience. Check the ratings and reviews online to be on the safe side. Visit reputed sites such as https://www.libertylending.com/ for perfect lending solutions and detailed information.
Poor Credit May Not Necessarily Be Harmful
Credit is surely important, however, you must appreciate the fact that a credit score does not necessarily demonstrate the correct picture. Whether it is divorce, bankruptcy, or even failure in business, certain circumstances in life could set you back anytime without any prior intimations. While seeking loans from private lenders, you would realize that a proper business plan and collateral are very important and are of more significance than credit. However, in case of a traditional bank scenario, the focus would be on your credit score and credit history. Your loan application would be declined if you have a low credit score, black marks, and an overall poor credit history.
This is certainly not the case with moneylenders. The private moneylenders would be examining your credit report and other allied issues but that would certainly not be the decisive factor while granting you loans. Private moneylenders are looking for a robust exit strategy and a solid equity.
Banks could be harassing you for many weeks with requests for numerous financial documents before declining or approving your loan request. However, private lenders would be approving or declining your loan application very quickly in a matter of only a few days. This is simply because loan request approval would depend primarily on the merit and efficacy of your business plan, the capacity of turning a profit, and the specific asset itself.
If you have ever bought an investment home, you must then think in terms of the bidding process. If someone has a loan approval in his pocket, he is surely having an edge over the other buyers who still have not applied for mortgage loans. But despite a traditional bank loan approval, he could fail to get the deal because of a savvy buyer like you who shows up with hard cash from a private lender.
In reality, this is quite a common thing in the real estate scenario. However, you know that usually, families do not show up with hard cash while buying homes. Mostly it is the real estate investors who are thinking in terms of profit by simply flipping the property or converting it successfully into a rental property.
Remember with private lending the terms of the agreement are generally negotiable. The main issue seems to be that this kind of lending is bound to be featuring a relatively higher interest rate. But if you are buying and selling the property fast, the interest rate expenses are supposed to be minimal as compared to your profit.
Prepayment Penalties Not Applicable
If your business is doing well, you would certainly not want to be penalized for achieving success. Yet, conventional financial institutions like banks are used to charging heavy prepayment penalties for paying off the loan before the pre-determined due date. Private lenders would be structuring loans without any added fees or prepayment penalties.
Drawbacks of Using a Private Lender
Some of the drawbacks associated with private lending also need to be discussed. You could get only short-term funds from private or hard money lenders. Since they charge higher interest rates if your loan extends over a period of several years, it would be eating away the overall profits you are getting. Often people do not seek private lender assistance because of the typically very high-interest rate.
Suppose you are a potential borrower having a stable financial history, good credit score, and also the fact that you are seeking a long-term loan, it could be better if you approach a traditional bank. However, in case you are thinking in terms of a short-term loan that is funded quickly then a private lender would be your perfect choice. The only thing that you need to keep in mind is that you must check the credentials of the private lender and approach only a licensed lender for all financial deals.