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Private Money Loan: Common Decision Factors and Terms of Private Money Loans

Most people in search of loans only know about conventional loans and do not consider private money loans as another choice.

Read More: Top 10 Loan Servicing Software For Private Lenders

If a borrower is aware of this type of loan, they often misunderstand how a private money loan works and shy away from consider it for their funding needs.

Private money loans are a quick way to access money for the purchase of property, businesses, and business expansion.

They term length for this type of loan is much shorter than conventional loans and can be as long as six years with certain providers.

Private money loans have many purposes including real estate financing and commercial business financing. If you want to expand your business or purchase a small piece of property, a private money loan could be the answer.

Costs included when applying for a private money loan include a loan fee and document preparation fee. The loan fee is a percentage of the loan amount. Document fees for private money loans are a fixed amount that varies per company.

A property inspection fee is also required and the total cost is based on the location of the property. Companies that offer private money loans are very upfront when discussing fees and the application process. If the property has enough equity, the fees can be included in the over all private money loan amount.

Read More: Top 10 Best Loan Servicing Software Vendors

Most companies have an interest clause that is included. These clauses involve a specific time period where payments must be made on the loan before complete payoff is allowed. Early payoff on some private money loans may involve a penalty or additional interest to be paid.

Private money loans offer benefits that are not available through other types of loans. Borrowers investing in real estate have the ability to make offers when applying for private money loans that would otherwise be impossible due to time constraints and strict lending rules. The amount of time spent waiting for private money loan approval is drastically reduced when applying for a private money loan.

Conventional loan providers can take many weeks to approve a loan and then additional weeks to make the funding available. Time can be the difference between a profitable investment and a loss. Choosing a private money loan allows quick turnaround.

Property condition can be a reason for denial of a conventional loan. Lending institutions may reject a loan application due to lot condition or other property condition issues. Private money loans are well suited for raw land or empty lots due to the investment possibilities.

Cash leverage also plays a part in private money loan approval. Most private money loans are based on the actual value of the property and not the price paid or other items. This eliminates the additional work required when applying for a bank loan. The most common used for private money loans are real estate investments, construction, and land development.

Of course, they are not limited to these uses. A private money loan can be closed within a week to two weeks making it very convenient and a good choice for some borrowing situations.


Conventional loans are the most common lending method chosen by borrowers. This could be due to a lack of knowledge in regards to other available lending choices. Private money loans are loans provided by private lenders.

Interest rates are higher than other loan types but getting approved is much more simple and faster. People who are trying to making a quick investment for profit or trying to develop a plot of land often chose private money loans as a short term way to obtain the funds they need for a particular project. These types of loans are not limited to these types of investments. Anyone can apply for private money loans when making property purchases and for other funding

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