The Difference Between Private Money Lenders vs. Banks

When most investors apply for mortgage loans, they seek out traditional lines of credit first. However, any seasoned real estate investor knows that conventional bank loans, credit unions, and other formal credit lines come with an array of limitations.

Most investors often lean toward working with private lenders once they realize the flexibility and opportunity these non-conventional loans offer. To learn more about the difference between private money lenders vs. banks, continue reading below.

Private Lenders Are Less Formal

The most noticeable difference between private money lenders vs. bank loans is their formality. While traditional bank loans and credit unions must review multiple layers of formalities before approving loans, private lenders are more casual. Private lenders can also come in several different shapes and forms.

For example, a private lender could be a friend or family member who loans you out a large sum of cash or an organization that offers an alternative, short-term financing option.

Private Lenders Don’t Rely on Your Credit Score

While conventional banks check your credit score and financial history before approving loan applications, private lenders have a different approval process. Private lenders are often asset-based rather than credit-based.

This asset-based focus means that private lenders will determine an investor’s loan value by examining their property’s value and potential profit. As a result, private lenders can be ideal for investors with lower credit scores or valuable properties.

Private Lenders Have Faster Approvals

With so many investors flooding the housing market, having fast financing that’s ready to purchase rental properties is a must. Luckily, private lenders can approve your funding at a much more rapid pace compared to conventional banks.

Since banks, credit unions, and other formal lines of credit must follow a particular set of reviewal and processing steps for approving loans, investors can get stuck waiting for financing for their properties.

In comparison, private lenders are not tied down or mandated to follow any procedures when approving loans. Having fewer of these restrictions allows investors to receive financing for their properties with little hassle.

Private Lenders Are Flexible

Finally, a major difference between private lenders and conventional bank loans is their flexibility. Specifically for real estate investors, the type of financing these investors need does not fit the long-term allowances that traditional bank mortgage loans offer.

Instead, real estate investors often need hard money to bridge the gap between paying off properties or fast financing for closing on a home. Fortunately, private lenders can work with investors’ individual and specific needs to help them secure appropriate funding. However, banks are more likely to deny nontraditional requests for financing.

Now that we’ve explored how these two types of financing are different, consider what kind of loans your future investments will need. If you’re ready to apply for private money loans, LJC Financial LLC is one of the most trusted private money lenders in Houston, Texas. To learn more about our financing options, check out our website.