There are different forms of money lending. If you want to start your own business of loaning money you will have to choose the right type of money lending business that you are knowledgeable about and comfortable with. You can choose private money lending or hard money lending or even commercial money lending if you can afford.
However, the bottom line is that you must know about the market and your customers and also have a strong business model to follow. Apart from that, you will need to be honest in your business practices so that you can easily gain trust of your clients and grow your customer base with referred and repeat business.
Private money lending
This is the most common form of money lending business that has its signature characteristics and attributes. These are:
- In most of the cases the private money lenders usually utilize their own funds to lend money to others.
- You can expect a high rate of returns from private money lending when you compare it with any other forms of investment.
- You may even consider privately lending money to people to buybonds. When the purchase matures, you will geta return on your initial investment as agreed along with a predetermined rate of interest over the entire payment period.
- The loan tenure in these cases usually ranges for a couple of years. Depending on the type of loan requested by the borrower it can be for three to five or even seven years. For larger amount of loans such as mortgage loans it can be even for fifteen to thirty years.
Private money lending is a specific field in which you will also require the ability to appraise any collateral accurately that the client may wish to put up against their loan request. However, to be on the safer side, it is wise that you check your appraisals with two or more other persons. This will ensure that the prospective client is putting up worthy assets that have a value which is comparable to the amount of loan you are providing to the particular client.
Apart from that, you will need to keep up with the insurance policies as a private money lender. This knowledge will make sure that the assets of the clients that you take as collateral is adequately insured against fire or nay other hazards. Also make sure that they have proper liability insurance. This will eliminate any chances of losing the assets in case you have to confiscate it due to non-payment of your clients.
While structuring the loan make sure that the clients add you to their policy. At the same time you must also inform the insurance company that you are being added along with the reason of such addition. This will ensure that the reimbursement check will be sent to you and not the client should anything to the assets you have used as collateral for the loan. With all these practices followed you will be as safe and successful as other private money lenders such as liberty lending and others.
Hard money lending
As compared with private money lending, hard money lending is considered to have less risk involved. However, there are a few specific set of rules for hard money lending that you should follow. First of all, hard money lenders must initiate and maintain a good rapport with the set of people that includes:
- Loan brokers
- Accountantsand of course
- The potential clients.
Hard money lenders are often considered to be the puzzle solvers because they usually bring different parties to the table so that a suitable loan for the client can be structured.
Apart from that the hard money lenders also have the flexibility to make shortterm and even longterm financing offers. The differences between the two are:
- Shortterm loans usually have higher rate of interest and fees attached due to the instant need for working capitalwhile
- Longterm loans will provide a steady income and a stable profit over the years of the loan.
Apart from having a strong network and contact with lots of investors and brokers the hard money lenders often have to work with other people as well. These people include lawyers who are well familiar with the lending laws as set by the state as well as the federal regulations and guidelines assigned for lending money.
In addition to that, many hard money lenders will also work with other different hard money lenders simply to know and to stay familiar with the loan underwriting process.
With these knowledge and practices followed you will be sure that you as well as the other investors that you work with are repaid and make successful lending.
Commercial lending business
Lastly, you can even start a commercial money lending business but for that you will need to undergo an in-depth finance training program. This will help you to know everything that you need including the rules, the practices followed and the ways in which you can start you commercial money lending business.
Commercial financing is ideally much safer as it usually involves a person who acts as a liaison between the business owner and you as the money lender. This will help you to reach an agreement easily and in the favor of both you as well as the business owner.
Commercial money lending is a flourishing business as more than 60% of the entire conventional loan applications usually get rejected by the traditional banks. Business owners are therefore compelled to look for an alternative lending method.
You may take help of the different training groups to know more about business ownership and all possible aspects of commercial lending. With such training you will be able to bringpeople together in order to make deals happen. Apart from the training you will get all the necessary tools from the training providers.
Therefore, if you are well prepared and do your business well, you can earn a six-figure potential income on your terms.
Marina Thomas is a marketing and communication expert. She also serves as a content developer with many years of experience. She helps clients in long-term wealth plans. She has previously covered an extensive range of topics in her posts, including business debt consolidation and start-ups.