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Do You Need a Hard Money Loan or a Private Loan?

private loans

If you’re looking to purchase a piece of real estate but need a loan to do so, you might have some questions about which financial route you should take. After all, there’s not just one kind of loan to choose from. Better yet, each kind of loan has its own pros and cons.

The main two loan categories to consider are hard money loans and private loans. They have the same purpose, but they work in different ways, making them useful in a variety of situations.

What Is a Hard Money Loan?

Hard loans come from loan companies that have set terms for their loans, making it somewhat like a bank. There are criteria you must meet and rules you must follow in order to obtain and successfully pay back these types of loans. However, they may not always be as strict with their criteria as a bank would be.

These loans are generally short term and are usually paid back within 24 months. They’re also only available for non-owner occupied properties which makes it a popular option among home flippers. They are based more on property assets than credit history, which can be useful for someone who has been turned down by a bank due to poor credit in the past.

What are Private Loans?

Private loans are another flexible option for loan-seekers. This is because they come from a private citizen or company rather than a bank. In this case, you don’t have to follow the strict rules set by banks or loan companies. It could come from a friend, someone in your family, or just someone in your community who wants to invest in your project. There may be more room for negotiation in this situation and it’s ideal for someone with low credit or who might need a little wiggle room with their payments in the future. However, it also depends on finding a private loaner who is willing to back you.

Which Should You Choose?

There really isn’t a single answer to this question. Realistically, you could go either way assuming that both options are available to you. Not everyone has the option for private money loans and may need to rely on a hard money loan company for help. Both choices can help to avoid a bank if you are struggling with your credit, although a private loan might offer you more flexibility. The best thing you can do is look at what options are available to you and find out what will be easier to manage with your financial situation.

For more information on private loans and hard money loans, rely on GW Private Capital.

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Private Money Lending: What It Is and How It Works

private money lenders for real estate

Across America in 2017, only 40% of business owners applied for a loan. This number is down from the previous year when an estimated 45% applied for a loan. This information from the Federal Reserve shows that fewer are applying for the loans their company needs, however, loan programs have proven to be a good option for many. Private money lenders and hard money lenders in Los Angeles and beyond work each day to help American investors and business leaders choose loan options that are right for them.

Here are some of the most common forms of loans and why your business can benefit from private money lenders.

The Types of Real Estate Loans

Hard money loans and private money loans are the primary types of real estate loans you can choose among. Neither of these two forms is directly associated with loan programs provided by the bank and other mainstream sources. Rather, you need to work with a quality private capital service provider to receive a loan that works for you. They’re known as real estate loans because the loan provider relies on a piece of real estate or other property to serve as collateral should you be unable to pay back the loan. More often than not, the loan is used to purchase a piece of property in the first place, making it a savvy investment for house flippers and other real estate investors.

However, these two types of loans are quite different. As a savvy investor, it is important to be informed regarding the types of lenders available in the California area before making the right decision for your business.

Hard Money Loans

Investors for real estate often use hard money loans when time or other reasons disallow other forms of loans to happen. More often than not, a bank or credit union requests long-term payments over the course of a few years. Hard money loans, on the other hand, are designed to be paid back quickly.

This type of loan is favorable for many business owners since they’re often a lot less strict regarding credit history. Because they don’t rely on stringent loan standards, like banks, hard money loans rely on the loan being paid back quickly, typically between six and 24 months. For house flippers, this often the length of the entire project, from purchase to selling the fixed-up abode. These types of loans are interest based and often deal with properties that are non-owner occupied.

Private Money Loans

Private money lenders for real estate is another form of loan program you can choose from. These type of loans come from a private investor. Having a strong investor network is crucial when it comes to private money lenders for real estate because unlike hard money loans, this type has a lot to do with making strong and trusted connections. In order to achieve this loan, it is good to make bonds with people that are both in and out of the industry dealing with real estate. The reason for this is simple: investors. After all, there a number of people who don’t want to put in the hard work but may be interested in investing in your project. Private money lenders for real estate may seem difficult to find, but with the right methods of connecting with others, it could be as easy as knowing a neighbor or friend who wants to jump into the world of private money lenders. Relying on accredited investors and hard money lenders, however, assures a business owner that they’re able to achieve their goals by a reliable third party.

When you feel private money lenders for real estate or hard money loans are right for you, it is important to know as much as you can regarding these types of loans. For more information, rely on the experts at GW Private Capital today.

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Things to Know before Taking a Hard Money Loan

private money lenders

Getting a bank loan today has become hard, especially if you have bad credit. Yes, you might get the loan, but the deal will not be as good. At the end of the day, you might find that you owe more in high-interest rates or have to pay a higher premium. This might cause you to pay almost double the amount of money you borrowed in the first place, especially if you took out a mortgage. Meanwhile, business loans come with loads of pressure and often have a higher price tag.

It’s no surprise that fewer people today are taking business loans out from banks. This isn’t surprising given that some studies have shown that American households owed $9.12 trillion in mortgage debt as of 2019. According to a Federal Reserve Survey, in 2017, only 40% of American business owners applied for a loan, down by almost 5% from the year before. Hard money loans from private money lenders have become an increasingly viable option if you need quick and cash.

What is a hard money loan?

So, what exactly is a private money loan or hard money loan? A hard money loan is a loan given by a private investor or a private company that is often secured by a property. Instead of looking at your credit score, private money lenders look at the value of your property or business. There is no standard interest rate for a private money loan. The interest rates depend on the hard money lender that you choose. Private loans are quick and are given for a short period of time, typically ranging between 6-24 months. This period can be extended depending on the agreement between you and the lender.

What types of properties do private money lenders accept?

Some private money lenders for real estate are selective about the type of property you can put down as collateral. Some prefer residential properties while some are more open-minded. Others might even be willing to accept a motorcycle as collateral. The best method is to be direct and ask the kind of property the lender prefers.

Are private loans the best choice?

Only take a private loan if you are sure you are going to pay it back quickly. Dragging it over time might end up costing more depending on the amount you took and the interest rates. Hard money loans are typical among property flippers who work within a short time frame. This is what makes private money lenders for real estate so popular.

If you choose to borrow from a hard money lender, put the following factors into consideration.

How to choose a great hard money lender

  • Experience and credibility: Make sure that the private money lender of your choice has a good track record and years of experience.
  • Payment flexibility: Although private loans are for a short time, make sure that you can get a proper payment plan.
  • Interest rates: What the loan will do for you should be worth the interest. Avoid suffering a loss by carefully analyzing your finances and planning how you will use them. Also, do your research and get a money lender with manageable interest rates.

When you’re looking for the best private money lenders around, rely on the experience of GW Private Capital to transform your life.