Private Lender vs. Bank: Why You Should Always Go For a Private Lender

Private Lender vs. Bank: Why You Should Always Go For a Private Lender

In the wake of COIVD-19, loan rates in the U.S. are currently lower than they’ve been in quite a while.

Are you a real estate investor? Are you considering taking advantage of these low rates to invest in a new rental property? Are you confused about the private lender vs bank debate and which one you should choose for your business’s loan?

Read on to learn more about the difference between private lenders and banks. You’ll also find out why a private lender is always the way to go.

What Is a Private Lender?

Before we dive into the benefits of working with a private lender, let’s clarify what a private lender is.

Private lenders offer to finance all kinds of investors, including real estate investment entities. These companies are privately owned (which explains why they’re called “private lenders”).

There are a few ways that private lenders differ from traditional banks. The main difference, though, is that they have fewer regulations and governing bodies to answer to.

Because of the different, less stringent regulations, the underwriting process for private lenders depends less on income and more on other factors, like the purpose of the loan itself (i.e, what you’re going to buy with the money loaned to you).

Private Lender vs Bank: Benefits of a Private Lender

There are lots of reasons to work with a private lender instead of a traditional bank, especially if you run a real estate investment entity and are applying for a business purpose loan. The following are some of the most noteworthy advantages to keep in mind:

Fewer Regulations

Private lenders are often less regulated than banks.

Banks have to meet a variety of state and federal regulations, as well as regulations put in place by agencies like Fannie Mae and Freddie Mac. These regulations put limits on the types of businesses and individuals the bank can lend to, as well as what the borrower profiles can look like.

Private lenders still have to abide by state and federal laws and regulations. However, they have more freedom and flexibility compared to traditional banks.

Customized Loans

Because private lenders have more freedom and flexibility, it’s also easier for them to customize loans to different borrowers. They can tailor your loan to your specific business credit score, your debt-to-income ratio, and your loan-to-value ratio.

These customization options help them to create a unique loan that works for you and helps you get the amount of money and specific loan terms that you want.

Easier Approval

Thanks to the customization options available to private lenders, it’s often easier to get approved for a loan through them than it is to get approved by a traditional bank.

Private lenders can make more adjustments and tailor your loan to you and the rental or investment property you’re hoping to buy. They’re not beholden to as many rules and restrictions that could disqualify you from getting approved by a traditional lender.

Private lenders are especially helpful to new entities and those that don’t have a lot of credit. They’re used to working with people who have unique circumstances, and they’re often more willing to look beyond the roadblocks that can cause your application to be denied.

Faster Approval

Not only is it easier to get approved, but the approval process is usually faster. When you work with a private lender, you can get approved very quickly since they don’t have to jump through as many hoops.

If you’re looking to get approved for a business purpose loan so you can buy a new rental property right away, a private lender is definitely the way to go.

Fully Licensed

It’s worth noting that private lenders are fully licensed to do business in their specific states, too. There are plenty of reputable lenders who can answer your questions and help you get approved for a loan as quickly as possible.

How to Choose a Lender

At this point, you have a pretty clear answer to the question, “Should I use a private lender?” You might be wondering, though, what steps you should take to choose the right private lender.

If this is the case, here are a few tips to help you find the right lender for your needs:

Consider Loan Types

When checking out different private lenders, start by considering the types of loans they offer. Do they provide rental loans? Bridge loans?

Whatever type of loan you need, look for a lender who offers that specific option.

Research the Team

Look into the people who work for the lender, too. What kind of experience do they have? How long have they been working for that lender?

Checking out the team can help you feel more confident about working with a particular lender. You’ll be able to feel more comfortable when you go in (or log on if you’re meeting virtually) for your first meeting, too.

Schedule a Call

If you’re nervous about working with a certain lender, reach out to see if you can schedule a consultation or phone call. This gives you a chance to address your concerns, ask questions, and get an idea of what you can expect if you do take out a loan through them.

Read Reviews

Finally, read reviews. Any lender worth borrowing from will have plenty of positive reviews available on their website. Check to see what past borrowers have to say to see if a specific lender meets your needs and is a good fit.

Find a Private Lender Today

It’s easy to feel unsure when looking into the private lender vs bank issue. As you can see, though, it’s almost always better to work with a private lender.

Keep the information outlined above in mind so you can choose the right lender for your needs.

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