Private Money Financing

By providing financing and servicing their loans, private money lenders are in the business of helping those needing private money loans (loans made by private individuals.) There are generally two types of private money professionals, direct lenders and brokers. Most professionals in the industry are actually brokers. Some of these people are both direct lenders and brokers. In this case, the private money lender usually will fund only a couple small loans, or even fractionalized shares of the loans, per year and acts as a broker to borrowers for the bulk of the loans that he or she works on.

Deciding whether to seek the services a private money broker or a private money lender is much like choosing whether to purchase a home with the aid of a broker or whether to write an offer directly to the seller, representing yourself in the transaction.

Working Direct With The Decision makers

The benefits of working with a direct private money lender or investor are pretty cut and dry: it will be less expensive if you go directly to the source. Brokers are compensated for the work they do by charging points on the private money loan, usually in addition to any points the end lender charges. Therefore, the more brokers that are in a deal, the more you are likely to pay in fees (such as points) to accommodate that cost.

If you have chosen a direct private money investor who likes you as a borrower and your loan scenario, you will be dealing directly with the end user or investor, avoiding the ?run around? that so many private money borrowers fall prey to. This can be both good and bad.

By working with a direct private money investor, you can avoid any communication issues, and this may allow you to close more quickly. This is due to the fact that no one knows your scenario like you do, no one else can explain any items that the investor may have questions about better than you are able to, and no one knows the benefits that the transaction will bring like you do. The other side of the coin, though, is working with the direct private money investor means that your loan either funds or it doesn’t, there are no other options if the private lender declines your request, except to go back to searching for another direct lender that happens to like your particular transaction.

Why You May Want to Work With a Broker

The advantage of working with a broker is also clear: a good, hard working, well connected broker will know and have relationships with the direct investors with whom your loan scenario will fit. A quality broker will help you put toghether your loan package properly, discussing with you various information that will help you decide how much of a loan amount you can obtain, and what kind of terms you may be able to expect. A good broker will allow you to get through the application process and get it to the most likely private money lenders for your situation. This may reduce the stress and legwork for you, and in general is well worth the additional cost.

At the end of the day, your decision to deal with a good private money broker or directly with a hard private money lender will likely depend on whether or not you have a relationship with a investor directly and whether you feel comfortable packaging and presenting your funding request directly without professional help.