Common Frustrations and Fears in Private Money Lending
What’s private money lending? It is the business of loaning money, commonly secured by real estate, through private investors. Who might these private investors be, you ask? They could either be individuals with money to invest or a group of people whose monetary contributions are used to fund these private loans generally secured by real estate.
In order to get a loan from a bank, you need to meet the 3 Cs, which stand for credit (your credit score and history), capacity (current income and ability to make payments), and collateral (assets that may be used to secure the loan). If you do not fully meet all three requirements, or you need to move quicker than the average bank, then your hope lies in private money lending. Such an arrangement benefits both the borrower and the lender. You as the borrower get a loan that you might not otherwise have achieved, while your lender gets the chance to earn an above average return.
There are some risks involved, of course. All types of loans come with them. There are also fears and frustrations in relation to the process. For instance, it can be frustrating when paperwork turn-around is delayed or when there are issues about accuracy. These are often minor hitches that amount to a lot of stress for all sides of the equation.
It’s even worse when the problem lies in the character of the people you’re dealing with. What if somebody you assumed to be trustworthy started demonstrating a lack of professionalism and integrity? This is one reason why you need to review references and partner with a professional team that knows how to look for red flags and stays on top of industry news.
Headaches often stem from the process or system itself. What do I focus on today? How do I keep on top of all of the players in the loan process? If this sounds like you, you also wonder who grows the business while you are putting out fires and pushing paperwork. If you have built a small team to assist you still wonder what happens if your “go to staff member” is out sick today or wants a vacation – OR QUITS.
Deep Fear however, usually stems from compliance issues. There are unpleasant possibilities such as changing regulations, the risk of a BRE or CFPB audit and the cost of compliance (e.g., software, trust accounts, quarterly reporting and CPA audits). You may feel compelled to learn everything or hire more staff to avoid making a mistake and embarrassing yourself but did you start investing in Private Lending to become a manager? Finding the right partner gives you the peace of mind you need and the free time you want.
Private loans are a godsend for those who cannot borrow from a bank due to stringent rules. Meanwhile, they are an opportunity for private investors to earn. It’s effectively a win-win situation. The risks are there, but they can be mitigated when an excellent servicing company is involved.
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