Clearing up something about private lending...

[Alex Breshears]

Since I get these questions a lot - I thought going out to the BP community to see what they think might be educational.

As a private lender, I've discovered the term is very ambiguous and vague to borrowers. There are not unified terms within the lending space to differentiate a lender like myself that lends out their own capital in defined ways secured against real estate, a lender that is more synonymous with 'hard money' that has very strict underwriting criteria and documentation requirements, a friends and family lender that may give a borrower money for the downpayment or closing costs - or even DSCR lenders that will offer permanent debt on properties.

It gets confusing for borrowers. Before the pandemic of 2020, most borrowers didn't think about where the money came from to fund their deal, as long as it showed up on the closing day. Now, understanding the source of your capital and what can be done with that source will allow an investor to reach out for the right tool at the right time.

"Private Lender" as I am using it here denotes individuals (or their business entity) that are lending money they directly control and keep for the life of the loan. They are not turning around and selling it on the secondary market, so they have the freedom to be more flexible on underwriting and loan terms. Many have a business model of keeping the lights on with interest paid during the life of the loan. These lenders will want to have their capital backed by an asset - usually some piece of property. This will be done by filing a lien (mortgage vs deed of trust) in the municipality where the property is located.  A few smaller private lenders may offer 2nd lien products, but they will be under very specific criteria and with a combined loan to value usually below 75%.

"Hard money" as I'm using it here will be the large lenders you see advertising everywhere. They can usually lend in most, if not all, states in the US.  They have institutional backing from possibly a large fund, hedge fund, warehouse lines of credit, or large business lines of credit.  Usually these lenders are selling their loans on the secondary market and off to fund the next deal. Their business model relies on deal flow, and that requires some conformity to what the secondary market is willing to buy. That's why you see the very strict underwriting criteria and documentation requirements for these types of lenders.  These can be a great asset if you have a very standard deal, good credit, lots of experience, and potentially time for a more thorough underwriting to close your deal. They also have much higher maximums than some private lenders, so if you are looking to take down a luxury property or even a medium sized multifamily deal quickly - these types of lenders can be a great resource.  Some may also offer a short term bridge debt option that rolls into permanent financing at a certain benchmark, saving in refi costs.

DSCR lenders as I'm using it will be permanent debt financing for many investors because these loan products look heavily at the income the property produces. The underwriting may involve a credit check on the primary borrower, others do not but may require a personal guarantee signed by members of the business entity borrower. Terms can vary widely in this category from annual interest rates, prepayment penalties, income calculation, DSCR ratio, maximum loan to value, minimum and maximum loan size, amortization period, and requirements to escrow taxes and insurance. If the property is in a habitable condition at the time of purchase, and will have an income that can support the purchase price, these are a great option for many investors as long term permanent debt.

Where I think the waters get muddiest is with people seeking "gator lending".  These investors are looking for capital for anything and everything from earnest money deposits, renovation costs of the property, downpayment and closing cost assistance for acquisition of a new property, or help with holding costs while the property is undergoing renovation and not producing income.  Most of these requests have no ability to secure the capital against an asset, or if there is a 2nd lien placed on the property it may be behind a lender that doesn't allow junior liens.  While there can be ways to secure your capital in this type of lending, in many instances that I have seen these deals go bad because the borrower was undercapitalized to begin with, both borrower and lender are inexperienced, and neither understand the risk they are taking on. Yes, there is risk for the borrower doing this type of lending.  If you have a foreclosure notice or judgement pop up in public records, you will have a much harder time getting loans in the future to continue your real estate investing journey.

So what has your experience been with lenders?  Do you agree with this broad assessment? I realize these are highly generalized, but in order to provide a bit of clarity to investors on the sources of capital available to them I thought this would be a good starting point.

[Andrew Zamboroski]

Quote from @Alex Breshears:

Since I get these questions a lot - I thought going out to the BP community to see what they think might be educational.

As a private lender, I've discovered the term is very ambiguous and vague to borrowers. There are not unified terms within the lending space to differentiate a lender like myself that lends out their own capital in defined ways secured against real estate, a lender that is more synonymous with 'hard money' that has very strict underwriting criteria and documentation requirements, a friends and family lender that may give a borrower money for the downpayment or closing costs - or even DSCR lenders that will offer permanent debt on properties.

It gets confusing for borrowers. Before the pandemic of 2020, most borrowers didn't think about where the money came from to fund their deal, as long as it showed up on the closing day. Now, understanding the source of your capital and what can be done with that source will allow an investor to reach out for the right tool at the right time.

"Private Lender" as I am using it here denotes individuals (or their business entity) that are lending money they directly control and keep for the life of the loan. They are not turning around and selling it on the secondary market, so they have the freedom to be more flexible on underwriting and loan terms. Many have a business model of keeping the lights on with interest paid during the life of the loan. These lenders will want to have their capital backed by an asset - usually some piece of property. This will be done by filing a lien (mortgage vs deed of trust) in the municipality where the property is located.  A few smaller private lenders may offer 2nd lien products, but they will be under very specific criteria and with a combined loan to value usually below 75%.

"Hard money" as I'm using it here will be the large lenders you see advertising everywhere. They can usually lend in most, if not all, states in the US.  They have institutional backing from possibly a large fund, hedge fund, warehouse lines of credit, or large business lines of credit.  Usually these lenders are selling their loans on the secondary market and off to fund the next deal. Their business model relies on deal flow, and that requires some conformity to what the secondary market is willing to buy. That's why you see the very strict underwriting criteria and documentation requirements for these types of lenders.  These can be a great asset if you have a very standard deal, good credit, lots of experience, and potentially time for a more thorough underwriting to close your deal. They also have much higher maximums than some private lenders, so if you are looking to take down a luxury property or even a medium sized multifamily deal quickly - these types of lenders can be a great resource.  Some may also offer a short term bridge debt option that rolls into permanent financing at a certain benchmark, saving in refi costs.

DSCR lenders as I'm using it will be permanent debt financing for many investors because these loan products look heavily at the income the property produces. The underwriting may involve a credit check on the primary borrower, others do not but may require a personal guarantee signed by members of the business entity borrower. Terms can vary widely in this category from annual interest rates, prepayment penalties, income calculation, DSCR ratio, maximum loan to value, minimum and maximum loan size, amortization period, and requirements to escrow taxes and insurance. If the property is in a habitable condition at the time of purchase, and will have an income that can support the purchase price, these are a great option for many investors as long term permanent debt.

Where I think the waters get muddiest is with people seeking "gator lending".  These investors are looking for capital for anything and everything from earnest money deposits, renovation costs of the property, downpayment and closing cost assistance for acquisition of a new property, or help with holding costs while the property is undergoing renovation and not producing income.  Most of these requests have no ability to secure the capital against an asset, or if there is a 2nd lien placed on the property it may be behind a lender that doesn't allow junior liens.  While there can be ways to secure your capital in this type of lending, in many instances that I have seen these deals go bad because the borrower was undercapitalized to begin with, both borrower and lender are inexperienced, and neither understand the risk they are taking on. Yes, there is risk for the borrower doing this type of lending.  If you have a foreclosure notice or judgement pop up in public records, you will have a much harder time getting loans in the future to continue your real estate investing journey.

So what has your experience been with lenders?  Do you agree with this broad assessment? I realize these are highly generalized, but in order to provide a bit of clarity to investors on the sources of capital available to them I thought this would be a good starting point.

 Alex,

Kudos to you, I think this was a good synopsis and is well written! In my experience, the terms private lender and hard money lender tend to get used interchangeably by folks and it makes it confusing! Some folks misrepresent (intentionally or unintentionally) and it makes it confusing for end borrowers. As more traditional Non-qm lenders expand into the hard money/DSCR space, it's more important than ever to understand the full picture of financing.

[Alex Breshears]

I agree Andrew! We can't expect borrowers to act accordingly or even ask for the appropriate things if they don't even know what kind of lender they are talking to or what tools they may have available to them in general.  Leverage can be a really powerful tool, so learning how and when to use it will go a long way for an investor to be successful in real estate. It's so central to real estate investing, and yet there isn't enough discussion on using it as part of your business plan to build a prosperous real estate business.

[Orlando De Los Santos]

Great insight, thank you for sharing!

[Alan F.]

Quote from @Alex Breshears:

Since I get these questions a lot - I thought going out to the BP community to see what they think might be educational.

As a private lender, I've discovered the term is very ambiguous and vague to borrowers. There are not unified terms within the lending space to differentiate a lender like myself that lends out their own capital in defined ways secured against real estate, a lender that is more synonymous with 'hard money' that has very strict underwriting criteria and documentation requirements, a friends and family lender that may give a borrower money for the downpayment or closing costs - or even DSCR lenders that will offer permanent debt on properties.

It gets confusing for borrowers. Before the pandemic of 2020, most borrowers didn't think about where the money came from to fund their deal, as long as it showed up on the closing day. Now, understanding the source of your capital and what can be done with that source will allow an investor to reach out for the right tool at the right time.

"Private Lender" as I am using it here denotes individuals (or their business entity) that are lending money they directly control and keep for the life of the loan. They are not turning around and selling it on the secondary market, so they have the freedom to be more flexible on underwriting and loan terms. Many have a business model of keeping the lights on with interest paid during the life of the loan. These lenders will want to have their capital backed by an asset - usually some piece of property. This will be done by filing a lien (mortgage vs deed of trust) in the municipality where the property is located.  A few smaller private lenders may offer 2nd lien products, but they will be under very specific criteria and with a combined loan to value usually below 75%.

"Hard money" as I'm using it here will be the large lenders you see advertising everywhere. They can usually lend in most, if not all, states in the US.  They have institutional backing from possibly a large fund, hedge fund, warehouse lines of credit, or large business lines of credit.  Usually these lenders are selling their loans on the secondary market and off to fund the next deal. Their business model relies on deal flow, and that requires some conformity to what the secondary market is willing to buy. That's why you see the very strict underwriting criteria and documentation requirements for these types of lenders.  These can be a great asset if you have a very standard deal, good credit, lots of experience, and potentially time for a more thorough underwriting to close your deal. They also have much higher maximums than some private lenders, so if you are looking to take down a luxury property or even a medium sized multifamily deal quickly - these types of lenders can be a great resource.  Some may also offer a short term bridge debt option that rolls into permanent financing at a certain benchmark, saving in refi costs.

DSCR lenders as I'm using it will be permanent debt financing for many investors because these loan products look heavily at the income the property produces. The underwriting may involve a credit check on the primary borrower, others do not but may require a personal guarantee signed by members of the business entity borrower. Terms can vary widely in this category from annual interest rates, prepayment penalties, income calculation, DSCR ratio, maximum loan to value, minimum and maximum loan size, amortization period, and requirements to escrow taxes and insurance. If the property is in a habitable condition at the time of purchase, and will have an income that can support the purchase price, these are a great option for many investors as long term permanent debt.

Where I think the waters get muddiest is with people seeking "gator lending".  These investors are looking for capital for anything and everything from earnest money deposits, renovation costs of the property, downpayment and closing cost assistance for acquisition of a new property, or help with holding costs while the property is undergoing renovation and not producing income.  Most of these requests have no ability to secure the capital against an asset, or if there is a 2nd lien placed on the property it may be behind a lender that doesn't allow junior liens.  While there can be ways to secure your capital in this type of lending, in many instances that I have seen these deals go bad because the borrower was undercapitalized to begin with, both borrower and lender are inexperienced, and neither understand the risk they are taking on. Yes, there is risk for the borrower doing this type of lending.  If you have a foreclosure notice or judgement pop up in public records, you will have a much harder time getting loans in the future to continue your real estate investing journey.

So what has your experience been with lenders?  Do you agree with this broad assessment? I realize these are highly generalized, but in order to provide a bit of clarity to investors on the sources of capital available to them I thought this would be a good starting point.

What a great post, thank you. As a mom n pop flipper and sole prop contractor 1099 I have been unappealing to lenders since 2008. Even with 800+ FICO, 0 DTI and 100% equity in primary. My exposure and knowledge of leverage is very limited. All my flips are cash out of pocket. Are there any books or information that you would suggest for education?

[Alex Breshears]

Quote from @Alan F.:

Quote from @Alex Breshears:

Since I get these questions a lot - I thought going out to the BP community to see what they think might be educational.

As a private lender, I've discovered the term is very ambiguous and vague to borrowers. There are not unified terms within the lending space to differentiate a lender like myself that lends out their own capital in defined ways secured against real estate, a lender that is more synonymous with 'hard money' that has very strict underwriting criteria and documentation requirements, a friends and family lender that may give a borrower money for the downpayment or closing costs - or even DSCR lenders that will offer permanent debt on properties.

It gets confusing for borrowers. Before the pandemic of 2020, most borrowers didn't think about where the money came from to fund their deal, as long as it showed up on the closing day. Now, understanding the source of your capital and what can be done with that source will allow an investor to reach out for the right tool at the right time.

"Private Lender" as I am using it here denotes individuals (or their business entity) that are lending money they directly control and keep for the life of the loan. They are not turning around and selling it on the secondary market, so they have the freedom to be more flexible on underwriting and loan terms. Many have a business model of keeping the lights on with interest paid during the life of the loan. These lenders will want to have their capital backed by an asset - usually some piece of property. This will be done by filing a lien (mortgage vs deed of trust) in the municipality where the property is located.  A few smaller private lenders may offer 2nd lien products, but they will be under very specific criteria and with a combined loan to value usually below 75%.

"Hard money" as I'm using it here will be the large lenders you see advertising everywhere. They can usually lend in most, if not all, states in the US.  They have institutional backing from possibly a large fund, hedge fund, warehouse lines of credit, or large business lines of credit.  Usually these lenders are selling their loans on the secondary market and off to fund the next deal. Their business model relies on deal flow, and that requires some conformity to what the secondary market is willing to buy. That's why you see the very strict underwriting criteria and documentation requirements for these types of lenders.  These can be a great asset if you have a very standard deal, good credit, lots of experience, and potentially time for a more thorough underwriting to close your deal. They also have much higher maximums than some private lenders, so if you are looking to take down a luxury property or even a medium sized multifamily deal quickly - these types of lenders can be a great resource.  Some may also offer a short term bridge debt option that rolls into permanent financing at a certain benchmark, saving in refi costs.

DSCR lenders as I'm using it will be permanent debt financing for many investors because these loan products look heavily at the income the property produces. The underwriting may involve a credit check on the primary borrower, others do not but may require a personal guarantee signed by members of the business entity borrower. Terms can vary widely in this category from annual interest rates, prepayment penalties, income calculation, DSCR ratio, maximum loan to value, minimum and maximum loan size, amortization period, and requirements to escrow taxes and insurance. If the property is in a habitable condition at the time of purchase, and will have an income that can support the purchase price, these are a great option for many investors as long term permanent debt.

Where I think the waters get muddiest is with people seeking "gator lending".  These investors are looking for capital for anything and everything from earnest money deposits, renovation costs of the property, downpayment and closing cost assistance for acquisition of a new property, or help with holding costs while the property is undergoing renovation and not producing income.  Most of these requests have no ability to secure the capital against an asset, or if there is a 2nd lien placed on the property it may be behind a lender that doesn't allow junior liens.  While there can be ways to secure your capital in this type of lending, in many instances that I have seen these deals go bad because the borrower was undercapitalized to begin with, both borrower and lender are inexperienced, and neither understand the risk they are taking on. Yes, there is risk for the borrower doing this type of lending.  If you have a foreclosure notice or judgement pop up in public records, you will have a much harder time getting loans in the future to continue your real estate investing journey.

So what has your experience been with lenders?  Do you agree with this broad assessment? I realize these are highly generalized, but in order to provide a bit of clarity to investors on the sources of capital available to them I thought this would be a good starting point.

What a great post, thank you. As a mom n pop flipper and sole prop contractor 1099 I have been unappealing to lenders since 2008. Even with 800+ FICO, 0 DTI and 100% equity in primary. My exposure and knowledge of leverage is very limited. All my flips are cash out of pocket. Are there any books or information that you would suggest for education?

If you want to get an idea of what the private lender may be looking for I’m one of the authors of BiggerPockets private lending book. What you could do is use that to make your own home grown army of private lenders to fund your deals - and potentially for longer periods of time. I know a few active investors that use exclusively private capital for longer terms - 3-7 years for example - and then they have a cash flowing rental without a credit check. But the book would give you an idea of what a lender would be looking for, how the process would look, and that way you can talk to your potential lender community and say here’s how I’m going to protect your money. 

[Julie Hawkins]

This is a very great understanding of each one. Thank you for sharing. 

Julie Hawkins

[George Randall]

The group you call "hard money" lenders, I've more often heard characterized as "institutional" lenders. I've always thought of hard money more in terms of the qualification of the borrower (asset value vs. personal credit). I don't think I've ever thought of it in terms of source of funds, but perhaps your point is this is where the industry has morphed to today. But I definitely think you're right in that there is not a clear distinction in terminology between private lenders, who are using their own, or a small pool of associates', money (often self-directed retirement funds) and institutional lenders. Thanks for taking a stab at defining these!

[James Blair]

I totally agree. Being a private money lender who lends out my own money, the typical response I receive from potential borrowers is that it is hard money. Seems like there are a lot less private lenders out there relative to hard money lenders. Both have their advantages and disadvantages.

@ George Randall - I like your term "institutional" lenders and will use that when trying to explain the difference between private money and hard money on the next opportunity.

[Alex Breshears]

Quote from @James Blair:

I totally agree. Being a private money lender who lends out my own money, the typical response I receive from potential borrowers is that it is hard money. Seems like there are a lot less private lenders out there relative to hard money lenders. Both have their advantages and disadvantages.

@ George Randall - I like your term "institutional" lenders and will use that when trying to explain the difference between private money and hard money on the next opportunity.

I agree with you! There probably are many
more private lenders like us than the institutional hard money lenders when you look at sheer number of each - but the “big guys” have the ability to market and advertise much more - they are placing a larger volume of deal flow - so they get a lot of attention. The little guys like us just quietly do our thing in our network. I really enjoy that aspect of my business - I work with some great people over and over. Everyone gets set up for a win - and we watch each other prosper. What I don’t think a lot of people realize is we are taking money back from Wall Street and putting it on Main Street. We are helping our communities, business owners in our communities etc. 

[Don Konipol]

Quote from @Alex Breshears:

Quote from @James Blair:

I totally agree. Being a private money lender who lends out my own money, the typical response I receive from potential borrowers is that it is hard money. Seems like there are a lot less private lenders out there relative to hard money lenders. Both have their advantages and disadvantages.

@ George Randall - I like your term "institutional" lenders and will use that when trying to explain the difference between private money and hard money on the next opportunity.

I agree with you! There probably are many
more private lenders like us than the institutional hard money lenders when you look at sheer number of each - but the “big guys” have the ability to market and advertise much more - they are placing a larger volume of deal flow - so they get a lot of attention. The little guys like us just quietly do our thing in our network. I really enjoy that aspect of my business - I work with some great people over and over. Everyone gets set up for a win - and we watch each other prosper. What I don’t think a lot of people realize is we are taking money back from Wall Street and putting it on Main Street. We are helping our communities, business owners in our communities etc. 

First, your original post is an excellent and well thought out analysis.  
I’m not sure that the term private lender and hard money lender are measuring exactly the same thing.

Private money refers to the source of  the capital, while hard money refers to the terms offered. 
so, by my definition one can be both a private lender and a hard money lender. 

In my experience "hard" money is used to describe an extreme section of what's referred to as asset based lending. So, hard money would encompass most if not all of the following characteristics: not credit based, loan amount based on the value of the hard asset offered as collateral, high interest rate and high points, short term loan, relatively low LTV, low documentation requirements, non cash flowing properties still considered.

Private lending is a little harder to define.  I’ve heard essentially 2 different definitions.  The more expansive definition is any lender that isn’t “conventional or institutional “.  On the other extreme is lending from an individual lending only his own or family money.  

In my case I started out 20 + years ago as a private hard money lender lending only my own capital. When I invested (lent) as much capital as I wanted to, I started lending out friends and referrals capital. About 2 years into lending I had so many investors I needed to formalize the business and formed my first "fund", whereby the investor were limited partners in a portfolio of hard money mortgage loans. When we got into larger loans, we decided to syndicate each loan into a separate Series LLC so that the passive investor could pick and choose if and how much he wanted to invest in each loan. Interestingly, our criteria and qualifications and terms have changed remarkably little in the ensuing 20 plus years. So, from the borrowers viewpoint not much has changed.

Under the definition of private lender you proffer we would not be included at this point, despite the fact that the borrower is getting almost exactly the same thing as when I was lending only my own money.  But, I probably had more stringent criteria even then than most private lenders as I always was aiming to scale this business. Interestingly, and providing support for your position, when I come across a deal I really like but doesn’t fit into our criteria for our fund, my partner and I often invest in it as individuals.  So I guess in this limited instance we are private lenders.   

Anyway, thanks for opening up this interesting discussion.  The major takeaway for the investor looking for funding is to understand different funding sources and figure out which provides the greatest benefits and they have a realistic chance of funding.  

[Jay Hinrichs]

Quote from @Alex Breshears:

Quote from @James Blair:

I totally agree. Being a private money lender who lends out my own money, the typical response I receive from potential borrowers is that it is hard money. Seems like there are a lot less private lenders out there relative to hard money lenders. Both have their advantages and disadvantages.

@ George Randall - I like your term "institutional" lenders and will use that when trying to explain the difference between private money and hard money on the next opportunity.

I agree with you! There probably are many
more private lenders like us than the institutional hard money lenders when you look at sheer number of each - but the “big guys” have the ability to market and advertise much more - they are placing a larger volume of deal flow - so they get a lot of attention. The little guys like us just quietly do our thing in our network. I really enjoy that aspect of my business - I work with some great people over and over. Everyone gets set up for a win - and we watch each other prosper. What I don’t think a lot of people realize is we are taking money back from Wall Street and putting it on Main Street. We are helping our communities, business owners in our communities etc. 

I started in mid 80s working for a HML and then ended up owning the company..

To me the difference between Private money and HML is pretty simple.

HML is one that holds themselves out as a lender IE advertises has a website in states that its required is state licensed and NMLS registered does not matter the source of their funds its about how the business is set up and marketed.

A private money lender is simply that a private person that is NOT in the business of making loans they are simply using their IRA or some excess cash to loan to those they usually personally know or meet at RIA events. But they have no website they have no license and they do not market its all word of mouth.

Whats happened basically since the GFC is that HML s  have started to market themselves as PM lenders with the Rouse that they are private there for to the layman borrower that means cheaper rates and easier qualifying..  But these companies have websites market their business and are in the business. They suck in borrowers who dont know the difference and think they are dealing with some company that will give them an advantage since they are not HML they are private.

Most states that require license and NMLS registration for 1 to 4 unit loans no matter on the purpose of the loans ( and there are 12 states currently that I know of that require this thats why there really is NO national HML virtually none are licensed in all 50 states even though they advertise that way). But anyway those 12 states generally will have a carve out for TRUE PML who is lending their own money and its usually a limit of something like 3 loans a year no more than 5 outstanding at anyone time.. other wise a license is required even for those not holding themselves out as a lender.

Thats my definition of it . after 40 some years of doing this LOL.  IN CA a RE broker can do HML / PML thats the benefit of a CA brokers license you can sell RE and make loans.. and make fractionalized loans all legally.

PS I remember one time when I was giving a presentation in Manhattan Beach CA at a FIBI event.. there was about 80 investors in the room I asked for a show of hands how many were PMLs and I would say half the room raised their hands  :) thats were private money is found.

[Don Konipol]

Interestingly, this from the American Association of Private Lemders

Few know that the American Association of Private Lenders was for a brief period in 2009 (the same year it was established) called the National Hard Money Association. The small caucus that gathered at our inaugural annual conference shared ideas to bring the profession into the mainstream and safeguard its position in the larger finance market.

Perhaps the most crucial idea to come out of that conference was the need for a new term to define their vision for the industry and its future: not “hard money” and “hard money lenders” but “private money” and “private lenders.” With that, we became the American Association of Private Lenders—and we began spreading the word.

Finally, Some Definitions

Underpinning the concept of minimizing the use of “hard money” in our industry is a recurring theme of standardization—that the root of the issue is too many interpretations of what the same terms mean.

We offer up the following definitions for discussion, debate, fine-tuning, and eventual consensus [last updated 5/9/2022]:

Private lender: Any non-depository individual or entity that primarily originates business-purpose loans secured by hard assets, generally real estate.

Hard money lender: A subset of private lender where creditworthiness is determined solely by the securing real estate collateral.

Correspondent lender: A subset of private lender where the closed loan is sold to investors.

Portfolio lender: A subset of private lender where the closed loan remains in the lender’s portfolio.

Fund manager: A subset of private lender where, depending on the fund structure, the deployed capital is sourced by offering exempted securities to accredited and occasionally non-accredited private investors.

Private investor: An individual or entity that seeks a return by deploying capital through a private lender or fund; the investor may or may not be named on the loan’s promissory note.

Private money broker: Any individual or entity that acts as an intermediary between a borrower and a private lender without directly originating the loan.

[James Doren]

Excellent analysis of some terms that shouldn't, but often do, get tossed around interchangeably. In this current market specifically, it's extra important to seek out the right loan product and the lender type that best suits your needs. 

Our entire company is based on working with private lenders - and we use this term the way you defined here - an individual or entity that lends out their own capital that they keep for the life of the loan. We get approached by 'hard money' lenders and even small banks or capital groups, wanting to offer us a 'private money loan'. We do work with these institutions from time to time, but the crux of our business is really helping individuals or companies invest their own money and get high returns on a short-term loan. 

I read your post with a smile on my face, and was tempted to copy and paste it on our website! LOL. Appreciate the break down, great content!

James

[Farley Youman]

Alex: you made some good points about "private lending", etc. I actually looked up the definition of private lending one time, and the best that the internet could come up with is that a company could call themselves a private lender if they have direct access to the money at their company. However, as you said almost everybody states that they are a private lender whether they are or not.

You used the key word- "individual". I would call this loaner a private individual source- with the emphasis on the word individual.

-You mentioned that the individual would have more flexibility. For their own sake of risk, hopefully not too flexible! They would need to be at least a little more flexible and of course faster to differentiate themselves from the big lenders.

-There are a lot of myths about private individual money. For example, that it has a lower interest rate. The interest rate can be whatever the individual sets it at, so it could be lower, but so far all the private individual sources I deal with are in the mid-range of interest rates for fix and flips. Most investors I deal with are happy to pay a little more for the expediting loan process to get it closed fast if need be- so as to not lost a great property deal.

[Shango Collier]

Hi Alex, can I ask how does one go about creating a relationship with a private money lender who isn’t of relationship to them? I’ve read that most people who use PML always mention the lender being a friend or family member. I would just like to know if there approach is similar when establishing business relationships?