Private money loans are an increasingly popular way to finance home mortgages and business projects. They are a viable alternative to traditional bank financing. The smoother application process, common sense underwriting, and quick closing are the benefits of private money borrowing, but they come with the cost of higher interest rates. Nevertheless, for some people, the trade-off is well worth it. The fact is, a private money loan can be the best option or only option, depending on your situation. Before you start looking for financing, read on and decide if getting a private money loan is right for you.

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What is a Private Money Loan?

A private money loan is a loan funded by a private investor, not a traditional financial institution like a bank or credit union. Private investors are often companies or individuals who have money and are willing to lend. In return, they earn the interest rate charged to the borrower. That interest rate is often higher than the rate of return they could get from investing their money in CDs, the stock or bond markets, or other investment opportunities. So, a private loan is a good investment opportunity for the lender.

Traditional financial institutions often have strict loan requirements. Borrowers must submit documented income and asset verification. This results in borrowers providing a lot of documents including tax returns, pay stubs, W-2s, bank statements, and renting history, among other documents. Private money loans typically have more relaxed requirements that often require less paperwork. 

Both personal and businesses fund projects using private money loans. That makes them a viable financing alternative to bank financing for a growing number of borrowers. The amount of money lent by private investors has been growing steadily for decades. Kohlberg, Kravitz, Roberts (KKR) is a New York-based investment firm focusing on private equity. A recently published KKR Insights article reported, “Private credit is a $1.5 trillion market with the capacity to do larger deals. The syndicated loan market and the high yield market are never going to go away, but I think direct lending has become a viable and equivalent alternative funding source. . .”

Reasons People Need a Private Money Loan

Some people who cannot qualify for a bank loan turn to private money investors for financing.  But private money lending isn’t just for people with low credit scores. Without stringent underwriting requirements, private money lenders can take a common sense approach when approving an application. That common-sense approach can often result in approval after being denied by a bank. 

Banks consider some loans riskier than others and depend more on the borrower’s personal financial profile when determining approvals. Private money lenders, on the other hand, can use a common-sense approach and give greater consideration to the quality of a borrower’s assets. That makes private money lending a great option for home mortgages and real estate investments.

Additionally, banks consider businesses with little collateral or lots of cash transactions to be risky and are often unwilling to lend them money. Regardless of their success, businesses like restaurants, bars, gentlemen’s clubs, and warehouses find private money lending the only option for financing renovations or expansion projects. 

Application and Approval

The first step to getting a private money loan is to find an experienced private money lender. A quick online search should serve up a page full of options. It’s best to find an independent, local company with lots of experience in private money lending. The best ones put people first,  listen to your needs, understand your situation, and can find a funding solution specifically for you. Having a good relationship with your lender is very important and can go a long way towards approval. 

Once you’ve chosen a private money lender, you must fill out an application. While the amount of paperwork required will be less than what is required by a bank, a private money lender will still need some information and identification. Often, private money lenders will look at the quality of a borrower’s assets and ability to recoup the loan if the borrower defaults. These considerations are often more important than verified income and credit history.

The interest rate charged for a private money loan is usually a couple of points higher, depending on current interest rates, than a loan from a bank or credit union. That offsets the risk the lender is willing to take, the ability to use compensating factors as a substitute for income and asset verification, and the convenience of quick closing. Best of all, private money loans can often close in couple of weeks, so funds are available much sooner than if they were coming from a bank. 

So, is a Private Money Loan Right for You?

A private money loan may or may not be your best financing option. If you have good credit scores, own property or other assets, have money in the bank, a verified steady income, and a relatively safe business, a traditional bank can probably lend money at a lower interest rate.  But even if you have all that, banks may not be able to close your loan by the time you need funds. Timing is critical when it comes to funding, and sometimes traditional financial institutions cannot meet your deadline.

For a growing number of people, a private money loan is a viable alternative. This is especially true for those who need a common-sense approach to approving a loan. For example, people whose payment history may be preventing a bank from seeing an individual who is now on solid financial footing and can pay off their loan. Or someone who wants to buy another investment property with little collateral. And there are plenty of upstanding businesspeople who own successful businesses that banks deem unreliable. For all of them and others, a private money loan is the best option. And when someone needs that best option, Olympia Mortgage is the first call to make. Olympia Mortgage has been in the business of private money loans for over 35 years. They offer personal and business loans through an extensive network of private lenders. And, of course, they can close loans quickly so you can start funding your dreams as soon as possible.

Olympia Mortgage Services Inc. is a Tampa-based private money lender.  In business since 1989, we arrange for loans and provide lending services, including low-documentation loans to individuals and all types of real estate-backed businesses. We use a common-sense approach to underwriting and approvals. Learn more by visiting the Lending Services page and About page on their website. For more information or to get started, call us at 813-931-3288.