5 Differences Between Private Lenders and Banks
6 minute read
February 9, 2022


People today find themselves in frequently more unusual circumstances where it’s harder to get a traditional bank loan. 

They could be first-time homebuyers with a limited credit history, real estate investors, or fix and flippers. But securing a loan for your next home or renovation product is about more than just comparing rates — it’s about actually closing your loan.

With big traditional lenders, there’s often too much red tape and federal regulations stopping you from getting the funding you need when you need it.

Luckily, there’s a growing trend of using private money lenders or hard money lenders like Marquee Funding Group. They come in in instances when it’s simply too difficult or time-consuming to get a traditional loan.

In this article, we’ll compare the traditional and private lender differences and give scenarios where a private money loan is preferable. 

Private Lenders vs Banks: Five Key Differences

Because private lending companies are funded by private investors, they have more flexibility in choosing which loan projects they work on. 

Not bound by the same federal regulations as banks, hard money lenders are often easier and faster to work with, especially with borrowers who are in unusual or challenging financial circumstances.

Let’s look at the five key private lender differences:

#1 Loan Options

Both private lenders and traditional lenders such as banks offer many different loan options when it comes to real estate lending or mortgage lending. Loans can often be used for:

  • Debt consolidation
  • Home remodeling
  • Divorce and legal fees
  • Estate inheritance fees
  • Purchasing or refinancing real property 
  • Construction of real property

In 2010, the Dodd-Frank Wall Street Reform Act was signed, which tightened up the entire lending industry. It opened the door for private money lenders to service clients that institutional banks could no longer assist.

Marquee Funding Group has worked hard to continue offering consumer-purpose loans and non-consumer loan options when other options are scarce. This gives borrowers more loan options to choose from. 

#2 Credit Requirements and Flexibility

Securing funds through a private lender is much easier for people who are in unusual financial circumstances, have a limited work history, or have lower credit scores. 

For instance, new physicians and doctor graduates often have a difficult time getting a mortgage through a traditional lender. Even though doctors eventually make a high income, their high student loan debt makes them ineligible for traditional mortgages.

Self-employed workers and freelancers also face difficulties securing a traditional mortgage. Even if their income and work history have been stable. Generally, a freelancer needs to provide proof of at least two years worth of income to qualify for a traditional mortgage. 

Even Federal Housing Administration (FHA) loans, which are meant to help those with lower credit scores find houses, are still restrictive to people with very low credit scores.

However, private money lenders are more flexible with their credit requirements and are more eager to make a deal work.

At Marquee Funding Group, we have no minimum credit score requirement. We know there are more important factors to take into account than just a credit score.

What’s your loan scenario?

#3 Loan Approval 

The traditional loan or mortgage process often takes weeks or months to get approval. 

To qualify, you must also submit years of income and tax documents, job history, debt history, credit reports, rental history, and other documents that seem to invade your privacy.

But with hard money lenders, this process is simpler and requires less documentation. Because private money lenders aren’t bound by as many government regulations and use their own money to fund loans, they are more willing to work with financial situations deemed too complicated by traditional lenders.

It’s been said that hard money loans are the last resort for people who can’t secure loans through traditional means. This can be true, but we’re seeing more people in unique circumstances choose private lending as their first option. Likely because of the ease of use, quick turnaround time, and flexibility of working with a private lender.

#4 Quick Cash and Loan Closing Times

Private money loans are considerably faster than traditional mortgages when it comes to accessing real money.

Hard money loans have become increasingly popular with real-estate investors and flippers looking to take advantage of timely real estate deals.

When foreclosed homes become available, having access to quick cash can make all the difference for investors looking to win bidding wars.

Although the interest rates are higher for private money loans, the benefits outweigh the costs. The loan allows investors to secure and close time-sensitive deals at a much faster pace, giving them a competitive advantage over other real estate investors.

Because money is accessible quickly, investors no longer have to wait extended periods of time to get their funding from slow-moving banks. 

Marquee Funding Group’s average turnaround time for a business loan is seven days, and 10 days for a consumer loan.

#5 Payment Terms

Private lenders offer much shorter payment terms than traditional lenders.

The average mortgage is around 30 years. The average private money loan is around 12 months. 

These shorter payment terms are beneficial for fix and flippers looking to secure a new property, fix it up, and sell it within a year to pay off their loan and make a profit.

Private loans are also useful as bridge loans and new construction loans, giving a borrower enough money to buy or build their new home, while they are still in the process of living in and selling their existing home.

Fund Your Next Project with Marquee Funding Group

Marquee Funding Group is a full-service mortgage banking firm and private funding group located in Calabasas, California, providing lending solutions through California and Colorado.

We specialize in funding loans for investors in unique or challenging situations who have been denied loans from traditional lenders. You’ll feel the differences of private lenders when you start closing more deals and making more profit. 

Marquee funds all types of loans in both the consumer and commercial marketplace, including hard money loans, owner-occupied, construction loans, fix and flip, private money, and second mortgages.

Are you currently in need of a loan for an upcoming project? We fund loans others won’t. 

Contact us today with your loan scenario and we’ll take a look and let you know if we can make a deal work.

Photo by Kampus Production from Pexels

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