Private money
Encyclopedia
Private money is a commonly used term in banking and finance. It refers to lending money to a company or individual by a private individual or organization. While banks are traditional sources of financing for real estate
, and other purposes, private money is offered by individuals or organizations and may have non traditional qualifying guidelines. There are higher risks associated with private lending for both the lender and borrowers. There is traditionally less "red tape" and regulation.
Private money can be similar to the prevailing rate of interest or it can be very expensive. When there is a higher risk associated with a particular transaction it is common for a private money lender to charge an interest rate
above the going rate.
, seeking a chance to earn above average rates of return on their money. With that comes the risk that a private money loan may not be re-paid on time or at all without legal action. However, in the case of a real estate transaction the lender can ask for a deed on the property in their name & Insurance on the property the same as a bank lending money would require as collateral to help insure they be repaid in the event of a default on the loan or catastrophe to the property. In that case the lender gets the property and can sell it to recoup their investment. Private money is offered to clients in many cases in which the banks have found the risk to be too high.
usury laws. They are not exempt from banking laws. However they may be exempt from routine regulation such as banking exams etc. Further, if the loan is made to a consumer, the private money lender may have a limit on how many loans they may make in a particular state without being required to have a banking license. In the State of New York a private lender may make no more than five loans before being required to be a licensed lender.
It is not advised for residential homeowners and should be considered only for business capital and with the careful advice and oversight of an accountant and real estate attorney as the collection methods may be more aggressive in the event a borrower cannot repay. Private investors do not usually have the means or interest in long protracted workout agreements, and will usually go to court quickly as a means of recovering their monetary investment.
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
, and other purposes, private money is offered by individuals or organizations and may have non traditional qualifying guidelines. There are higher risks associated with private lending for both the lender and borrowers. There is traditionally less "red tape" and regulation.
Private money can be similar to the prevailing rate of interest or it can be very expensive. When there is a higher risk associated with a particular transaction it is common for a private money lender to charge an interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
above the going rate.
Private money lenders
There are private money lenders in virtually every state in the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, seeking a chance to earn above average rates of return on their money. With that comes the risk that a private money loan may not be re-paid on time or at all without legal action. However, in the case of a real estate transaction the lender can ask for a deed on the property in their name & Insurance on the property the same as a bank lending money would require as collateral to help insure they be repaid in the event of a default on the loan or catastrophe to the property. In that case the lender gets the property and can sell it to recoup their investment. Private money is offered to clients in many cases in which the banks have found the risk to be too high.
Private money regulation
Private money lenders must comply with state and federalFederal government of the United States
The federal government of the United States is the national government of the constitutional republic of fifty states that is the United States of America. The federal government comprises three distinct branches of government: a legislative, an executive and a judiciary. These branches and...
usury laws. They are not exempt from banking laws. However they may be exempt from routine regulation such as banking exams etc. Further, if the loan is made to a consumer, the private money lender may have a limit on how many loans they may make in a particular state without being required to have a banking license. In the State of New York a private lender may make no more than five loans before being required to be a licensed lender.
Private money vs government money
In monetary economics, private money (also called commercial bank money) is the opposite of government money (also called central bank money, high powered money). Although there was once private currency, nowadays, private money is just deposit money while government money (M0) is cash currency.It is not advised for residential homeowners and should be considered only for business capital and with the careful advice and oversight of an accountant and real estate attorney as the collection methods may be more aggressive in the event a borrower cannot repay. Private investors do not usually have the means or interest in long protracted workout agreements, and will usually go to court quickly as a means of recovering their monetary investment.