Private Lending

• What is private lending?
• Are private money lenders interest rate higher?
• Who is private lending for?
• What are the pros and cons of private lending?
• What type of security is needed?
• How long does it take to get funding?
• How do I qualify for private finance?

Q. What is private lending?

Private lending are niche loan products that serves very specific purposes for those that cannot be satisfied by normal lending channels. This includes borrowers that cannot get loans with any of the banks, low credit or

Q. Are private money lenders interest rate higher?

Generally, yes for the following reasons:

• Risk - private lenders take on clients with higher the risk profiles than traditional lenders.
• Flexibility - They are able to offer more flexible terms and than traditional lenders
• Speed - private lending can approve finance as quick as 1 hour as compared to traditional lenders with can take up to 6 to 8 weeks.

Q. Who is private lending for?

Private lending is for the following type of scenarios -

• Fast processing times for those that need finance quickly and cannot wait for traditional lenders. Most applications take 2 to 3 business days to acquire funding
• Those that are "asset-rich, cash-poor"
• Business owners who require short term funds
• Low credit score individuals that cannot take out a traditional loan.
• Self-employed or newly established businesses that cannot show 2 years income.
• Developers who form a new, special purpose company to work on specific project
• Immediate funding to "bridge" a shortfall.

Q. What are the pros and cons of private lending?

Pros

• Easy access and fast turnaround - less paperwork, less headache.
• No background/credit check - private money lenders only care about the security property and your exit strategy.
• Flexible terms - generally, private lenders are more flexible when it comes to security type and serviceability requirements.

Cons.

• Origination cost - establishment fee of 2-5% of loan amount on top of interest rate is not uncommon, add more (brokerage) if the loan is introduced by a specialist.
• Interest rates - there is rate for risk. Generally private lenders are expecting a return of 9-15%pa, some even expect 20%
• Short term loans - unlike banks that allow you to pay back in 30 years, most private lenders expect you to pay the loan back in 6-12 months, some of the more lenient ones will allow a couple of years.

Q. What type of security is needed?

Security options include:

• Property / rural / residential & commercial
• Vehicles, plant and equipment
• Shares and jewellery
• Specialised security
• Variety of cross collateralised security options

Q. How long does it take to get funding?

Turnaround time for private money lenders is generally a lot quicker than traditional lenders. Some lenders can release funding in as little as 24 hours, while most can in 2-3 weeks. It all depends on the complexity of the deal, size, location (accessibility to valuers), etc.

Q. How do I qualify for private finance?

Most private lending services will only lend on business purposes (non-coded / non-NCCP regulated loans). Business purposes can mean purchasing commercial property, cashing out to assist with cash flow of the business, or purchasing properties under company structures. The funds can't be for personal use, e.g. purchasing a residential property for owner occupation. You will be required to sign a declaration that the fund is to be used for business purposes.

Private lenders will make decision based on 3 things:

Security (location, LVR, asset class, etc)

Purpose

Exit strategy