Private Money Lender or a Hard Money Lender? What is the difference?
Updated: Jun 30, 2020
You may have heard me refer to Builders Capital as a #PrivateMoneyLender rather than a #HardMoneyLender. What exactly is the difference and why would I refer to the company in that way you may ask? Well, the answer is simple...
Hard Money Lenders
Traditionally #HardMoneyLenders are professional lending firms focused on asset based loans. They generally lend #PrivateCapital in the form of investment money, hedge funds or funds from other capital sources. Because the source of funds is private and not government backed Hard Money Lenders are not bound to the same regulatory restrictions that banking institutions are bound by and therefore they have more flexibility in their lending practices and the ability to lend on riskier transactions.
These asset based loans often have high interest rates and fees because the funds come from private capital sources and are often used for riskier real estate transactions. Also, these loans are generally short-term (12 months or less), they may require significant skin in the game in the form of a sizable down payment, etc. Benefits to using a hard money lender may include quick access to cash (fast closings) and a lot of flexibility. A Hard Money Lender will typically focus on the asset as security for the loan under the assumption that if things go wrong there is sufficient value in the asset to cover their losses should the need arise. Although in years past Hard Money Lenders may not have cared much about the individual borrower it has become much more common for Hard Money Lenders to seek personal guarantees in addition to asset based guarantees to provide as much security to the loan as possible.
Private Money Lenders
Many people refer to hard money lenders and private money lenders interchangeably as the same thing but for me there is a difference. In contrast to your typical Hard Money Lender, #PrivateMoneyLenders are generally defined as individual investors. They are your "sugar daddy" so to speak. Your "financial friend". Some people refer to them as an "equity partner" or simply an "investor". Often these are independently wealthy individuals with lazy money sitting around. They know enough about you or your business/industry to feel comfortable with short-term investments if they can realize a sufficient return.
Private Money Lenders can prove to be advantageous or extremely frustrating. On the positive side, Private Money Lenders may require less paperwork, they could be cheaper than a Hard Money Lender, and they may afford you opportunities to obtain hard to find lots through quick cash closings if they are willing. On the negative side these Private individuals may lack understanding of your business or industry, they can poke their nose in your business, sometimes they can get bossy, and if things go wrong with a project they can suddenly want to take over or act like your business partner.
What type of lender is Builders Capital?
Technically speaking Builders Capital would be defined as a Hard Money Lender simply because we are a professional lending institution. However, you will usually hear us refer to ourselves as a Private Money Lender, and for good reason. Builders Capital has a number of capital relationships that provide sufficient funding for Billions of dollars in loans nation-wide. We also utilize private investment capital. More importantly, the owners and team-members at Builders Capital know and understand construction. Many of us including the owners are builders and developers. So, when you build a house it's not just a widget for us. We know what you are going through and we understand what it takes to help you to be successful as a builder or investor.
In contrast to most Hard Money Lenders at Builders Capital we take personal interest in each individual borrower rather than just the project. Our goal is to build a relationship on a personal level. You build houses, we build relationships. Every loan officer and every team member in the company is focused on your success and in being "the Builder's Most Valuable Relationship". As your Florida loan officer I live locally near Orlando and I have the ability to visit with you, meet at your project, and to provide individual support every step of the way.
My goal is for you to have financial success and to grow your business. I hope for a long-term relationship and for not just one, but for many future projects down the road as well. I am here to provide financial solutions to your real estate project needs regardless of how complex, outside the box or quirky they may be.