In recent months, there has been a move among a small number of hard money lenders to rebrand themselves as private lenders. They recognize that hard money has a bad reputation among the general public. Even though that reputation is undeserved, it exists, nonetheless. Rebranding themselves as private lenders is allegedly a way that hard money lenders can improve their reputations.
Rebranding with new terms isn't uncommon. Teachers are now called educators; doctors are healthcare providers; police officers are called law enforcement these days. Sometimes rebranding with new terms works; other times it creates confusion. In the case of hard money lenders rebranding as private lenders, confusion is a real possibility.
It is true that all hard money lenders are private lenders. But it doesn't follow that all private lenders are in the hard money business. Many are, but many others are not. As a borrower, it is up to you to know your lender before you sign on the dotted line.
Private Lenders in a Nutshell
Private lenders, in their most basic form, are lenders that are not licensed as financial institutions. In other words, they are not banks or credit unions. That means they are also not what we typically refer to as 'traditional' or 'conventional' lenders.
Private lenders can be individuals who choose to loan out their own financial resources. They can be groups of investors who pool their money to lend it out. They can even be companies that offer lending as a service.
Even You Can Be a Private Lender
All it takes to be a private lender is money. Your rich uncle could loan out his family fortune to dozens of people who agree to pay back what they borrow along with interest. As long as interest rates aren't excessive and your uncle's practices don't meet the standards for being predatory, everything will be fine.
Even you can be a private lender. You can lend as much as you want to whomever you want, with whatever rates and terms both of you agree on. But that would not make you a hard money lender. Hard money lending is a specific type of lending governed by strict rules and regulations.
Hard Money Is Asset-Based
Although hard money lenders are also private lenders, what sets them apart from conventional lenders is their asset-based model. They require high-value assets to act as collateral against the loans they make. Approval decisions are based almost entirely on asset value.
Hard money lenders must also be licensed in their states. One of the lenders licensed by the state of Utah is Salt Lake City's Actium Partners. Actium is also licensed to make loans in Colorado and Idaho.
In terms of how hard money lenders are structured, there are numerous options. In many cases, you are looking at a firm run by financial experts who manage a fund comprised of money contributed by investors.
Mostly for Real Estate Transactions
Another key component of the hard money industry is that loans are almost always used to fund real estate transactions. Hard money can be harnessed for business expansion, debt restructuring, and even mergers and acquisitions. But most of the time, the hard money loan goes to a real estate investor looking to obtain a new property.
By virtue of the fact that hard money lenders are not banks or credit unions, they are private lenders. But not all private lenders are hard money lenders. It is an important distinction you need to know before you borrow from a private lender. Know your lender along with your legal rights and responsibilities.