Top 3 Situations When You Should Use Private Money Loans

Private money loans are an ideal funding option if you need cash fast to fund a potentially profitable fix and flip property.

But did you know that private lenders offer other advantages that banks and other traditional lending channels don’t?

Some of the situations where loans from a private lender can benefit you include:

1. Flexible Loan Structuring

Private money lenders can structure a loan by personalizing it to your needs and expectations. Traditional lenders typically don’t do this.

If you go to a bank for a fix and flip loan, they’ll try to shoe-horn you into one of their existing loan products. You’ll be stuck having to accept the terms set by the bank.

You can negotiate with a private lender to structure your loan in a way that you desire.

Say you need a $20,000 loan from a bank with a six-month deferred repayment. The bank’s policies most likely won’t allow postponing your repayment.

Private lenders can easily accommodate your repayment plan if they know you’re a trusted borrower. You might be asked to pay a slightly higher interest rate or upfront fees, but you’ll get the payment-free six months you need to do your upgrades.

If you want the flexibility to negotiate your loan terms, private money loans are your best option.

2. Higher Loan Limits

If you’re stuck with a set loan amount, private lenders can step in and provide higher loan limits than banks.

Banks will generally fund up to 70 percent of the as-is property value and expect you to meet the other 30 percent.

If the property you’re eyeing costs $50,000 and needs $50,000 in repairs. The bank will only be willing to lend you $35,000. You need not only the $50,000 to buy the property but the $50,000 to do your fix and flip it.

Banks won’t approve a loan that’s 90 percent ($45,000) of the property’s current value. It may be well beyond their risk parameters.

With a private money loan, you can borrow the funds you need to buy and improve the property.

Not all private lenders will approve high loan limits, but if your proposal is risk-free, you stand a good chance. Private lenders can help you secure a large loan quickly and avoid wasted time at the bank.

3. Fewer Income Stipulations

Traditional banks have strict income requirements and will decide how much you can borrow based on how much of your income it takes to make your monthly loan payment.

If you don’t fit that formula, you’re not getting the loan.

Self-employed? Plan to bring someone along to help you carry all the paperwork the bank will ask you bring to prove your income. If you can’t prove your income with a paystub, it’s much harder to get a loan.

Banks don’t care that the property you want to flip could easily repay the loan once it is sold, they make loan decisions based on your income, not the property.

A private money loan gets made based on the fix and flip deal you put together. Your monthly income isn’t the important thing, the deal itself is.

Borrowers who know what they’re doing and a property with good resale potential are the best candidates for private money loans.

If you can prove that your property will easily recoup the lender’s loan amount and interest, then you’re more likely to get your private money loan funded – even if your monthly income is irregular or low.

Private lending can do more than providing flexible funding. If bank policies are limiting your ability to finance your flip, or your monthly income is variable, turn to private lenders to make your fix-and-flip vision a reality.