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Anyone who has ever applied for a loan can attest to the headaches often involved when dealing with traditional banks. The timeline, the red tape, and all the demands that need to be met mean that traditional lenders and lending practices are not always the best choice.

Whether you’re considering private money lending or private borrowing, let’s explore the basics of private financing options.

What is Private Lending?

Private money lending is a lending type that allows borrowers to bypass applying through banks and other financial institutions. This approach includes avoiding the long wait times that are common when applying for traditional loans.

A private lender can be a company or an individual who lends money to borrowers in more convenient ways than the traditional lending model. For example, to determine whether to approve or deny a loan, a private lender often uses the value of the property in question to secure the loan rather than the borrower’s credit history.

Benefits of Private Borrowing and Lending

Whether you’re the borrower or the lender, private money lending has several advantages over traditional practices. One of the most attractive benefits for private lenders is the increase in cash flow they stand to earn. When you lend with caution, private lending is an easy way to make a profit without the instability or risk associated with stocks.

Additionally, lending money as a private company or individual offers the potential to diversify your portfolio with little previous experience. You can start small and collect your returns while you develop your lending skills, and if you proceed correctly, there’s not a lot of risk of losing your investment. You either receive the money you’re owed, or you receive the collateral promised.

Borrowing money from a private lender also has its benefits. When working with a private lender, the rules are not usually as strict. For example, it would be easier to borrow money for a home that needs repairs when you seek private financing rather than traditional funds. Interest rates may also be variable, and terms may be adjusted to satisfy both parties’ needs.

Private Lending Tips

If you’re interested in increasing your cash flow through private lending, it’s a good idea to cover your bases before you get started.

  • Speak with a lawyer about your plans to ensure that you’re prepared.

  • Insure your business

  • Stay local (at least at first)

  • Know how to assess risks

  • Determine your preferred focus

Private money lending can be a rewarding endeavor, especially when you take all of the necessary steps to protect yourself. Should you need any help during the planning phase, speak with financial professionals to obtain helpful guidance.

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