A commercial private loan strictly speaking is defined as any business financing covered by a corporation or private firm that is not a bank. These loans are almost always set up as debt financing built through factoring, a line of credit or just basic loans. Potential lenders are not required to give up their company equity in order to be approved for this type financing.
This type of loan is designed to bridge the hole not covered by traditional banks, which have little or no flexibility in their loan structures and underwriting procedures. A private loan does not have many of the rules and regulations attached to the more conventional ones and can be more imaginative with its clients’ needs. These loans can meet almost any business financing need and still keep the percentage of risk at a low level for both the lender and the borrower.
An example of how this works can be described by this scenario. Your credit score is 600 which narrow the chance of a bank providing the money for even a very good sounding project down considerably. On the average 60 percent of most banks’ loan customers are rejected due to the strict rules covering loans. Private loan applications are approved, on the other hand, as high as 85 percent of the time. Other good things about this type of funding for your future project include the small amounts of documentation to be provided, few covenants, and a quick closing once you are approved. Better still you aren’t presented with a list of areas that you can’t use the money for once you get it.
These particular loans are particularly good for small business owners who generally have small amounts of capital, especially after they invested it all in the long list of things, material and otherwise that are required to simply start a business.
Yes, these loans are good, but a borrower will pay a higher interest rate than he or she would if they went to a bank. This is due to how much risk is involved—the higher the chances of no repayment by the borrower, the higher the rate of interest that will be charged. Banks don’t take a large amount of risk so their rates can be lower. Private lenders want to see that the business borrowed for is generating some revenue as well, so you will need to have proof of that.
Like any loan, learn all the requirements involved and what you will be expected to do once approved. Commercial private loans have a lot of advantages, but need to be handled as carefully so you and the borrower have the best lending experience possible. After all, you may want to work with this individual in the future—good business relationships are a real advantage.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.