Private lending offers flexibility in terms of a loan structure and approval processes when compared to traditional lenders, with the product type often catering to borrowers that may not qualify for conventional loans. Private lenders often provide more flexible terms via more permissive terms and policies when compared to traditional lenders, and they may offer customised repayment schedules designed around your borrowing purpose, interest-only loans, or other tailored arrangements to meet the specific requirements of the borrower.
The approval process for private loans is typically faster than that of traditional lenders since private lenders aren’t tied down by impersonal credit departments that often drag out the approval process. Private lenders can often make decisions very quickly without the extensive paperwork and bureaucratic procedures associated with banks.
Interest Rates
Private loans generally come with higher interest rates compared to traditional loans. This is because private lenders are taking on more risk, especially if the borrower has a lower credit score or lacks sufficient collateral.
Collateral
While some private loans are unsecured, many private lenders require collateral to secure the loan with property backed loans lowering the interest rates and improving the terms. The collateral include real estate, vehicles, or other valuable/business assets. The collateral provides a safeguard for the lender in those rare cases the borrower defaults.
Customised Approach
Private lenders often provide a far more personalised service with a single agent often working directly with borrowers to understand their financial situation and tailoring the loan terms accordingly. This relationship-based approach can be beneficial for borrowers seeking more flexible lending options – particularly for developers and short-term finance.
Types of Private Loans
The primary types of private loans include (but are not limited to) the following:
- Real Estate Loans. Private real estate loans are used to finance property purchases, renovations, or developments. These loans are popular among real estate investors who need quick access to funds or may not qualify for traditional mortgage products.
- Business Loans. Private business loans provide funding for small businesses or startups that may struggle to secure financing from traditional sources. These loans can be used for various business needs, such as expansion, inventory purchase, or working capital. Our website provides a large amount of information on business loans (leaning towards secured products with primary lenders). Unsecured business finance is often approved in a single day.
- Personal Loans. Private personal loans can be used for a wide range of purposes, including debt consolidation, medical expenses, or major purchases – not unlike personal traditional loans through larger lenders. These loans are often based on the borrower’s creditworthiness and ability to repay.
- Bridge loans/ Private bridge loans are short-term loans that provide immediate funding while the borrower secures permanent financing. These loans are commonly used in real estate transactions to bridge the gap between buying a new property and selling an existing property.
Advantages of Private Lending
While often carrying a stigma, private lending is entirely legitimate, competitive, and very flexible. Private lenders provide a valued and necessary service that is often utilised by those navigating the world of investment property and developments.
Consider the following advantages:
Accessibility
Private lending can be accessible to borrowers who may not meet the strict criteria of traditional lenders. This includes individuals with lower credit scores, self-employed individuals, or those with unique financial situations.
Speed
The streamlined approval process of private lending allows borrowers to access funds quickly. This is particularly beneficial in time-sensitive situations, such as real estate transactions or urgent business needs.
Customisation
Private lenders can offer customised loan terms that align with the borrower’s specific needs and financial circumstances. This flexibility can be advantageous for borrowers seeking tailored financing solutions.
Real Relationships
The relationship-based approach of private lending can lead to more personalised service and better communication between the lender and borrower. This can result in a more positive borrowing experience and potentially more favourable loan terms.
Disadvantages of Private Lending
Private lenders are usually utilised when conventional lenders aren’t suitable, credit provides an obstacle, time is critical, or financials are problematic. Traditional lenders have a higher risk threshold and exclude those borrowers that don’t meet their strict credit criteria, while Private Lenders have wider scope and accept more risk. This increased risk comes at a price, and the following are a list of disadvantages associated with private lending.
Higher Costs
The increased risk for private lenders typically results in higher interest rates and fees compared to traditional loans. Borrowers should carefully consider the total cost of the loan before proceeding.
Increased Lender Risk
Some private lenders may engage in predatory lending practices, offering loans with unfair terms or high-interest rates. It is crucial for borrowers to conduct thorough research and work with reputable lenders.
Limited Regulation
Private lending is less regulated than traditional banking, which can lead to variations in lending practices and protections. Borrowers should be aware of their rights and the terms of the loan agreement.
More Information
If you need more information, or would like to access funds as early as today, give us a call and have a more detailed discussion.
