Private money lenders come in handy when in dire need of financial assistance. However, ensure that you carry out your due diligence before engaging with any.

What is a private lender? 

Private money lenders utilise their investment to extend the much-needed financial assistance, which can come as a great relief, especially if you are experiencing cash flow challenges. They play a vital role in offering many different types of loans, be they for business or construction. However, before settling on any lender, ensure that you are well informed and have done enough research.

When done correctly, loans can help you achieve your goals faster. Therefore, if you need a mortgage loan, consider visiting and realise that dream of owning a home within a shorter period.

Before going further, let us assess mortgage loans from two different perspectives.

The first instance explains the quality of a loan from the investor’s viewpoint. Because this type requires more supporting documents, it almost guarantees repayment, and since the risk is minimal, these institutions can offer lower mortgage interest rates.

The second instance refers to both the probability of repayment and the lender’s loss if the borrower defaults in paying, but there is less emphasis on documentation. They are flexible and accept other non-conventional forms of proof, meaning that they are exposed to greater risk hence charge higher mortgage interest rates.

Private lenders are less formal entities that mainly extend credit without too much documentation or regulations.

One key factor that influence success rate in private lending is mainly through networking. Ensure that you have an excellent professional working relationship with others in your industry to build credibility. Always strive to act honestly, as this is an added advantage for you. Most private lenders are more confident when working with clients referred to them by trusted sources.

Be a person of integrity especially in your dealings with family and friends, who in turn may act as guarantors or references when the need arises.

Benefits of a private lender 

One of the main advantages is the approval speed. When you need to buy a premise, it is wise to move swiftly and close the deal immediately. The ability to move with speed will guarantee you a better offer as a private lender will ensure you receive the money within the shortest time possible.

If you applied for a bank loan and did not qualify due to the many qualifications required, consider accessing financing using private lenders who tend to be more flexible and accommodating. However, it is wise to note that they may or may not give you 100% financing to purchase that family’s dream house or business property you have been eyeing. Financing may vary depending on many underlying factors

Private lenders prefer extending financial assistance in urban cities where property value appreciates faster as there is a greater demand there.

You may find yourself in any of the instances outlined below that can make you consider using a private lender:-

  • You have just discovered a new property on sale, and you are interested in buying it. None of your family members, friends, or colleagues are in a position to lend you the money required. Terms and regulations required by the bank will take you forever before your loan is approved.
  • You encountered an emergency that has drained you financially, and now your home is about to be repossessed, and you find that you don’t qualify for a mortgage.

Key differences with private money lenders

Mortgage rate

You will find that though lending institutions like banks are cheaper, they are more complex and challenging to work with because banks are subject to state and federal regulations that determine who qualifies for financing. Though regulated by state and federal laws, private lenders are less complicated and tend to be easier to work with but are costlier.


If you manage to get approved, expect to pay your bank loan over a prolonged period, but please note that your payments will be costlier over time. Private lenders, on the other hand, charge higher interest rates with a shorter payment period.

Banks are stricter on terms and conditions, which minimises approval rates, unlike the private lenders whose interest on loans does not fluctuate. Even though banks can lend at minimal rates, they hardly ever do it; they have other income sources and hence do not entirely depend on loans.


When you are successful in securing a loan, a portion of it is set aside in reserve until specific terms and conditions are met, thus the term holdbacks.

Legal costs 

The disadvantage of borrowing from a private lender is that two lawyers are needed; one for the borrower and one for the lender and the borrower has to pay for both. Since private lenders have no proper documentation, lawyers charge a lot of money for the writing service, which they offer. Ensure you know the exact cost of legal fees before signing any documents with the lenders.


Before you settle on a financier for your mortgage plan, please do thorough due diligence, which will help you make an informed decision that you will not regret.

For instance, borrowing from a financial institution like a bank may be the way to go but the regulations set are too stiff that you may not qualify. The time needed for loan approval may take longer, making you lose out on a business deal. If the property’s value diminishes, you will pay the high rates or may have to sell to clear the loan.

On the other hand, borrowing from a private lender comes with flexibility, especially knowing that opportunity comes unexpectedly. A note to make is that private lenders are business people and not bankers, and hence they will give you a chance as long as you have proper guidelines in place and a strategy of how you will settle the loan.

If you are an investor, consider building a good working relationship with private lenders as that will ensure they come to your aid when a good business deal comes your way. Besides that, you need to know factors to consider to qualify for financial assistance.

If you need a mortgage loan, contemplate approaching a private lender like for financing. Bearing in mind that opportunities wait for no man, make quick but calculated decisions and apply for that loan you desperately need. An unsecured loan can boost your budget without subjecting your home or other assets to risk, but you must ensure proper planning. It may be the silver lining that will help you enlarge your territory.