How Do Private Lenders Stay in Business?
6 minute read
January 20, 2023


If you’re looking for more than just a good return on your investment—if you want a return that produces a predictable, stable income, getting into the private lenders’ business could be just what you’re looking for.

Despite mortgage industry shifts, private lenders stay in business while other lenders close. So what is private money lending, and how does it work? Let’s take a look.

What is private money lending?

Private money lending is when an organization or individual uses its own money to finance real estate investments for borrowers. 

Hard money loans are secured with a hard asset—the most common being real estate property. 

Private money loans and real estate investments

Hard money lenders offer loans that are secured against a financed property. These private lenders use the hard asset’s value to determine the loan amount and interest rate borrowers can receive.

Because the loan is tied to a physical asset, it can be easier for borrowers to get financing from a private lender instead of a conventional lender such as a bank or credit union.

Not so long ago, anyone who wanted to buy property had to use traditional lenders like banks or credit unions.

But this wasn’t always beneficial for real estate investors, who faced inflexible mortgage requirements with unrealistic timelines. 

Private investors saw an opportunity to offer improved loan options to investors who struggled when dealing with traditional banks. 

Today, private lenders are commonplace for investors seeking improved terms, eligibility requirements, or to get their loans approved faster.

Why do people use private lenders?

Conventional bank loans require income verification and financial documentation, such as W2s or income tax returns, in addition to good credit scores. 

While they add stability to the broader mortgage industry, conventional lending can be unnecessarily challenging for full-time investors or anyone with complex tax returns that may not accurately reflect their actual income.

Having the ability to repay your loan is one thing; proving it can be another thing altogether.

That’s where a hard money loan can help. Yes, private lenders generally ask for income or asset verification, but because they approach the lending process more realistically, they typically work with you—not against you—to find a solution that suits your specific situation.

Because of their streamlined lending process, private lenders tend to offer quick loan approval times compared to traditional lenders, with fewer eligibility requirements.

Private real estate lenders understand the overall real estate industry better and often possess regional or market segment knowledge other lenders may not have—which can make qualifying for private lending more attractive than conventional loans.

What’s your loan scenario?

Why hard money lenders stay in business

With competitive housing markets and rising mortgage rates, potential borrowers face increased challenges when it comes to getting a mortgage. And that can mean more clients for private lenders’ businesses.

Private loans are typically less regulated than conventional loans, allowing for increased flexibility in determining a borrower’s eligibility, viable investments, etc. 

However, because state and federal laws bind conventional lenders, it can limit which borrowers a bank can approve. While private money lenders must still adhere to state and federal regulations, they have increased flexibility and autonomy when deciding to work with a borrower.

Increased flexibility means private lenders also have a greater ability to offer customized hard money loans to potential borrowers. 

For example, private lenders can tailor a loan to fit a borrower with a specific DTI (debt-to-income ratio), credit score, loan-to-value ratio, debt-service credit ratio, etc. 

Private money lenders go beyond a traditional lender’s one-size-fits-all approach to borrowing

Increased flexibility, loan customization, and easier approval are just the tip of the iceberg of why private lenders continue to stay in business. 

The gig economy, side hustles, and investments have changed how most people earn at least part of their income. 

Unfortunately, conventional bank loans haven’t kept pace with self employed borrowers, creating a need for lending who can evaluate individual situations for viability rather than cookie-cutter mortgage approval criteria.

How to choose a lender?

If you’re considering a private lender to finance a business or personal real estate investment, knowing what to do first can be challenging—especially since all hard money lenders are not created equal. Therefore, it’s essential to do your research carefully to find an honest, licensed, experienced professional.

Look for a private lender specializing in hard money loans

Take some time to review private lending websites to see their area of specialization. 

You’ll want to look for those who focus on hard money loans and who not only originate loans in-house but also service them in-house.

Ask for referrals (or read online reviews)

Online reviews can be a great way to glean insight into a private money lender and help you refine your list of potential lenders. Don’t forget to ask for a referral if a friend or family member has recently used a private lender.

Compare loan processing, and turnaround time

A private lender is in the business of lending money, typically faster than a traditional lender. But because each lender determines their own process, their turnaround time can vary. 

Check with each private lender on your list to see what terms they can offer and how quickly they can process your loan. For example, we offer borrowers an immediate loan scenario evaluation at Marquee Funding Group, and funding can be approved in less than a week.

Local lenders will know the local market

While you can use a private lender just about anywhere, a local hard money lender will have keen insight into the local real estate market—and that real estate knowledge and understanding can make all the difference.

Local hard money lenders can better assist you with your project if you’re in the same area. Marquee Funding Group has experienced private money lenders with boots on the ground in California and Colorado.

Get started with Marquee Funding Group

Marquee Funding Group offers a variety of private lending solutions to suit your situation, including consumer and business hard money loans, single and multi-family loans, commercial, industrial, construction, etc., with loan amounts ranging from as little as $50,000 up to $20 million.

If you’re ready to find out more, submit your loan scenario today.

Photo by Binyamin Mellish

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