Hard Money vs Private Lender: Understanding Your Funding Options

I’m sure you are aware that there are many different options for funding real estate projects. Not all of them are the same, and some are more useful than others.

Hard money loans and private lenders are two of the most popular, but they have significant differences. Private lenders will typically offer a longer-term loan with fixed interest rates. Whereas, hard money loans come with shorter terms and variable rates.

This article will explore hard money vs private lender options to help you make an informed decision on which type of financing is best for your business!

Whenever you’re ready to find the perfect funding method for you, keep reading.

Hard Money Lending: What Is It?

Hard money lenders are investors who have already purchased property, either for their use or rent out. They may also invest in real estate by buying notes from other people at a discount. Thus, collecting the monthly payments until they can sell the message for profit.

While hard money lenders often require high rates of return. Especially when compared with traditional bank financing, it is worth noting that many of these loans last just 12-24 months. In contrast, others might be amortized over several years, depending upon your needs!

To qualify as a hard money lender, an individual must meet specific requirements set forth by state laws. These include having significant assets (at least $250k), cash equity available ($100k+), and experience in real estate.

This means that hard money lenders are typically very experienced. They know what they’re doing as far as real estate investing goes!

Hard money loans can be used for any purpose. But most commonly, they are used to refinance existing mortgages or make repairs on properties. For example, you might purchase a property using your cash and take out another loan from the bank with an interest rate of around five percent.

You then use a hard money lender to pay off this first mortgage at 14% to have more favorable rates in the future. It is crucial not to default on either loan, though! This means that both types of financing must remain current for the deal to work successfully.

Private Lending: What Is It?

Private lending is a business. Much like any other, where investors seek to make money by earning interest on their loans.

Investors who look for private funding must go through the same due diligence as they would when looking for bank financing. These include credit checks, proof of income and assets (such as tax returns), etc.

Your relationship with your private lender will typically be more long-term than what you see from hard money lenders.

These types of deals might last three years or longer! Private lenders are interested in partnering with those who have already established themselves.

This often means that borrowers can quickly pay back their loan amount plus interest without too many issues arising down the road.

However, if something does happen, you want to ensure that your private lender has your back and will stay on top of the situation.

As you can see, hard money vs private lender options have some key differences. Both provide options for those who need funding to pursue their real estate projects!

If you are considering either type of financing or traditional bank loans, it is essential to do thorough research before deciding which route to take. We hope this article gave you an idea of what each option entails. This is so that you can make better choices when looking at different types of business financing!

The Difference Between Hard Money & Private Lender Options: Term Lengths & Minimum Investment

The differences between the two are much starker than what we make them seem. Hard money loans are much shorter-term (typically one to two years). Thus, requiring a more considerable minimum investment ($100k+).

On the other hand, private lending can last up to five or even ten years, depending on your situation. Investors looking for private funding typically only need $500 in liquid assets. Whereas hard money lenders require at least $250k of total invested capital before approving any deals!

  • Hard money lenders offer shorter-term loans, usually between 12 and 24 months.
  • Private lenders offer longer-term loans that last from three years to up to ten years or more.
  • A hard money loan might have a minimum investment of $100k+, whereas private lending is typically lower, with an amount starting at about $50k

Hard Money Loans vs Private Lenders: Your Relationship With Them & Credit Requirements

The difference between financing is when you consider your relationship with lenders and credit requirements. You will likely have more direct communication with those providing traditional bank loans. Since they want to ensure you can repay the loan.

When using a bank for financing, they will typically require that borrowers have an excellent credit score to get approved! On the other hand, hard money lenders do not care about this as much. They might grant loans based on your cash flow or capital even if you have poor credit scores.

Hard money lenders want to partner with those who understand how their business works. Thus, these relationships tend to be less direct since communication is limited between parties.

They also don’t need good credit scores from borrowers. This is because they’re only concerned with getting paid back regardless of what happens during each deal.

Private lending often requires excellent credit scores. But sometimes bad ones can still work depending on circumstances such as the value of your real estate assets, etc.

Borrowers must have excellent credit with banks and will likely be required to check it before getting approved for a loan. However, these requirements can differ depending on the bank or lender you choose and the type of business funding you need!

If your credit is not so good, but you still want an alternative option such as hard money loans. Some companies might approve borrowers regardless of their scores (as long as they don’t fall below certain thresholds). Private lenders usually require excellent credit from those looking for financing.

This often means that borrowers won’t default on payments. However, we sometimes see exceptions here too if something came up. This caused financial issues down the road and now they’re trying to get back on track. 

Hard Money Loans vs Private Lenders: Rates & Fees  – Which Is Better?

When looking for funding options, it is essential to consider the types of fees you will be required to pay. In addition, to any interest, your lender may charge on top of these costs if applicable.

The rates provided by hard money lenders are based upon their criteria. This includes the type of property, the value of the property, and your credit history.

Private lenders tend to have much more standard rates that are usually determined by two factors. First, how significant an investment you want to make, the lower the interest rate you can expect. Second, the type of financing you will be using for this project specifically – equity or debt funding.

Not to mention, private lenders are typically stricter when it comes to your credit history. This is to determine what type of terms you will be offered for the loan. Thus, private vs hard money lender options are subjective.

Hard Money vs Private Lender: What Is Your Investment Strategy?

When it comes down to it, both hard money loans and private lending offer options for those looking into real estate projects. They need additional capital to pursue these goals successfully!

As with any business venture, though, it’s essential to think about which route has better terms. This is because every situation is different.

In addition to financial factors, you should look at your investment strategy and how each will help support investing. Whether it’s flipping properties or using debt funding for a new development project!

Furthermore, it is essential to remember that both of these methods for financing your real estate project are only available through business lenders.

If you’re looking into getting a loan from family or friends, it’s best to avoid this route entirely. There will be legal implications and issues down the line.

This is because the relationship between borrower and lender becomes much more complicated.

In any case, it is essential to be aware of what you need from a financing standpoint when starting the business. If this type of knowledge is new for your real estate project, do not hesitate to reach out and ask questions about these different funding options with a trusted broker or lender today!

Funding Done Right

In conclusion, there are many different things to consider when it comes down to business financing. This is especially true for real estate projects!

Suppose you need additional capital to move your project forward but have been having issues with traditional funding options such as bank loans and other forms of institutional finance. Why not look into hard money vs private lender alternatives?

Not only can both help support your investment strategy, but they also provide an alternative that’s much more flexible than what banks typically require from borrowers!

In addition, these two methods offer unique benefits depending on the type of property or project being pursued by the borrower. Do not hesitate to reach out if you’re unsure about which option will work best for what you have planned next.

Ready to get started?

Have an administrative question?

FOR PAYOFFS: [email protected]

FOR BILLING QUESTIONS: [email protected]

FOR REPAIR DRAWS: [email protected]