According to https://www.forbes.com, while most of the private loans are taken for funding property flips, a substantial amount is also taken for bridge loans, land acquisition, short-term refinancing, construction, and development activities. The reason why private moneylenders are so popular is that they are less risk averse and can offer funds to people who may not be able to meet the far stricter eligibility norms of banks. They are also often preferred as their requirement for documentation and credit checks is minimal and their speed of response far quicker. As evident as their advantages are, you need to be careful that you are not taken advantage of by a fraudulent moneylender charging very high rates of interest or upfront fees. Consequently, it is imperative that you consider various factors before choosing a private moneylender.
Reputation and Experience
Perhaps the most important factors that you should look at when choosing a moneylender are the reputation and the experience. In financial matters, you will always want to deal with someone who is completely genuine with unquestionable integrity because you really don’t want to be duped when you have important things hinging on the availability of the funds. Conducting a credential check is vital so that you can be associated with a moneylender of impeccable credentials who will not let you down. Furthermore, it is always better to choose someone who has lots of experience in this activity because then you will know that he will not suddenly change his mind midway during the transaction or commit himself to things that he cannot possibly deliver. If your requirement is large, be sure to find out whether the lender you are talking to has the requisite financial strength.
Ease of Application and Speed of Response
The very fact that you have chosen to deal with a private moneylender speaks for the fact that you are not interested in going through a cumbersome application process with several layers of complicated paperwork and credit checks. Since you need the approval in double quick time with the least amount of bureaucracy, you should choose a moneylender who can make the funds available very quickly. Be sure to ask about the typical approval and disbursement time before striking a deal with anyone. The speed of response is also very important in case you want the funds to be disbursed on demand depending on your crossing project milestones. A reputed online moneylender like https://www.libertylending.com/ takes only minutes to approve loans.
Reasonable Rate of Interest
The rate of interest will usually be one of the most important factors in the selection of a private moneylender. Of course, you need to appreciate the rate of interest charged by them will be far higher than what banks typically charge because that is the price you pay for quick loan approval without undergoing most of the credential and credit checks that are the norm in banks. However, even among private moneylenders, you may face widely differing interest rates; while a small variation can be attributed to the risk perception of your profile, the rest is due to factors like the amount of money that you require and the scale of operations of the moneylender in question. To get the best rate, you will not only need to shop around but also it may help to bargain to strike the best deal.
Flexibility in the Repayments
Depending on the nature of the application of the funds, you may need to choose a lender who is amenable to executing a contract with the sort of repayment schedule that works for you. For example, if you are taking the funds to invest in property with an intention of flipping it over quickly to make a profit, you are likely to require a moneylender who does not insist on an EMI repayment but is willing to take the repayment of the principal at one shot along with the interest. You may also want a repayment schedule that starts off with a small monthly payment and balloons thereafter in keeping with your expected cash flow.
Proper Documentation
Even though one of the main attractions of a private money lender is that there is less importance of documentation, still because you are borrowing money with an obligation to repay it as per a committed schedule, you need to ensure that both the interests of both the borrower and the lender are covered by an agreement. Typically, the agreement will cover important aspects like the total amount of funds being lent, the schedule, if any, of the disbursement of the funds, the rate of interest, the fees, charges, and penalties as well as the conditions of their applicability, the schedule of repayments, and any system for redressing disputes if they occur. Having all this in black and white on paper eliminates the chances of confusion and the lender taking advantage of you or vice versa.
Proper Loan-To-Value Ratio
If you are in the market for funds to acquire property with the intention of renovating and refurbishing them so that you can flip them over to make handsome profits in a short time, you should be talking to hard money lenders who specialize in funding this kind of short-term finance. Typically, the asset that you will buy will serve as the collateral for the loan, a process that is similar to that followed by conventional banks; however, hard money lenders have a more conservative approach to the property valuation than large conventional banks. Typically, lenders will value the asset on its current market value and lend a maximum of 70% of that amount. The large spread helps the lender to insulate him from the high risk that property deals typically represent.
Conclusion
Private moneylenders are dime a dozen but you need to be extremely circumspect when choosing one so that you are able to negotiate the best deal. The sort of moneylender you will end up dealing with depends on how much money you want, the purpose you want it for, the collateral you can provide, the sort of documentation you can show as well as your urgency. Be sure to only deal with established players with a rock-solid reputation and scout around for the best rate of interest even if you are rushed for time.
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