Important Concepts you need to know about a Private Money Lender

Unlike banks, money lending or hard money is supplied by private money lenders. The term hard money implies that it is secured by real assets, such as a property. Hard money loans are generally easier to obtain as compared to bank loans. But they come up with huge cost and risk to the borrower. Many startups or new entrepreneurs go for this option when they fail to get any bank loans. Let’s discuss some of the important concepts attached with a private money lender.

1.Lenders

Lender are any individuals or firms that has an amount of money to lend to a borrower. Some hard money lenders have a large amount of cash available which a small number of people or businesses tend to borrow. Other lenders are large firms who have hundreds to thousands of clients in small businesses or individuals. These lenders are normally merchant cash advance providers that lend money to businesses on the condition of receiving a share in their future earnings.

2.How process works?

Hard money lenders loan money to small businesses and individuals and secure the loans as a share in the borrowing party’s returns. Obviously there are certain limitations in this process. Lenders tend to pick up only those businesses who have a solid security to offer, for example, a house which will be taken over by the lender in case of non-payment. However, another option lenders go for is asking a share in the business’s future earnings. A percentage of the business’s credit card transactions is automatically deducted in this process to provide the lenders their share of return on loan provided.

3.Risks associated

If loan is provided on the condition of receiving a share of future profits, then the laws of limited interest rates on loans is not applied. In this case, the interest rates are normally very high ranging from 30% to around 200%. These types of hard money lenders usually take from 30% to 45% of the credit sales till the time all of loan amount is returned. This means that your income will be reduced to quite a significant amount till all the loan is paid off. Another downside is that if your business is slow in generating profits, then it will take years to return the loan. Failure to pay the loan can result in lawsuits and a breach of contract.

4.Advantages

One major advantage that money providers get after giving loans is to work along with small businesses. The loans are very easy to apply and can be received within a few days of application. Another major benefit for businesses is that they do not have to provide a proven sales or business record to loan providers. This is especially helpful for start-ups.

5.Precautions

Due to the high risks associated with borrowing money from a lender for any startup, you need to thoroughly check the lender’s profile and lending history. Try to approach other borrowers who have worked with this lender and get to know their experiences. You can also check your local Better Business Bureau to see if there are any complaints lodged against the lender.

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James Alberto is an experienced pest control professional, turned freelance writer. he has worked with several reputable pest control companies in the past, but now wants to share his knowledge with others and help them prevent pest infestations.