| Private money refers to loans provided from sources | | | | of interest, payment dates, and any action which |
| other than banks. This lending option is used by real | | | | would be taken if funds are not repaid. Promissory |
| estate investors, small business owners, and individuals | | | | notes are a legally binding contract which can be |
| with poor credit. Lenders have tightened loan approval | | | | submitted to court if borrowers default on their |
| criteria which can make it challenging to obtain | | | | agreement. |
| business financing, home loans, or funds for investment | | | | Individuals who obtain private money loans to buy a |
| purposes. Private funding sources can provide funds | | | | house must provide financial records and real estate |
| when traditional lending sources will not. | | | | contracts. Most lenders require pay records, along with |
| Private money loans can be obtained from a variety | | | | real estate appraisals and record of deed. |
| of sources. People often turn to family or friends for | | | | Business owners who obtain private funds for their |
| short-term financing and small loans. Cash advance | | | | company are usually required to provide inventory |
| companies offer money for a week or two or provide | | | | appraisals, corporate tax returns, profit and loss |
| lump sum cash to purchase structured settlement | | | | statements, business licenses and insurance contracts. |
| annuities or probated inheritance property. | | | | Private lenders are required to abide by their states' |
| Funding sources provide private funds to business | | | | usury laws in regard to the amount of interest |
| owners and investors. Individuals who require large | | | | assessed against the loan. Funding sources assume |
| sums of money to buy a house or fund businesses | | | | substantial risk when providing financing to high-risk |
| turn to hard money lenders which are oftentimes | | | | borrowers or for investment purposes. Nearly every |
| private investors or investment groups. | | | | private funding source will charge the highest interest |
| Private loans usually require less paperwork than | | | | rate legally allowed. |
| applying for mortgages or business financing through | | | | Finding private lenders isn't difficult. The Internet can be |
| banks or credit unions. Funding sources focus more on | | | | a good source for locating reputable funding sources. |
| their anticipated return on investment than borrowers' | | | | Investment networking groups and online real estate |
| creditworthiness. The type of financial records required | | | | clubs can provide referrals and share experiences. Not |
| by the funding source will depend on the collateral | | | | only can borrowers locate suitable private money |
| used to secure the note. | | | | lenders they can also discover who should be avoided. |
| When loans are provided from family or friends they | | | | It is best to retain the services of a qualified lawyer |
| should be documented with a promissory note. While | | | | when entering into private money lending contracts. |
| many people feel uncomfortable asking relatives to | | | | Some states limit the number of loans private lenders |
| sign a financial contract, promissory notes ensure both | | | | can offer before being required to become a licensed |
| parties are aware that the funds provided are a loan | | | | lender. In order to reduce financial liability it is crucial for |
| and not a gift. This simple contract can help prevent | | | | borrowers to engage in due diligence to ensure their |
| misunderstandings and family disputes. | | | | private money lender complies with state laws. |
| Promissory notes record the amount of the loan, rate | | | | |