Private Lenders

As the name suggests, private lenders are individuals or groups of individuals – as opposed to banks or financial institutions - who are willing to lend money to other individuals or to small businesses. Typically, private lenders tend to be people who have some money available with them for investment purposes and are looking for a better rate of interest than they would get at a bank. Private lenders lend money to individuals and businesses that have difficulty getting loans from a bank for one reason or the other. Sometimes, businesses simply prefer to take a loan from a private lender rather than approach a bank or venture capital firm because private lenders are less likely to demand a board position or significant day-to-day control. Private lenders who lend to businesses are basically looking for the same kind of things that banks look for, viz., an interesting business idea, a strong business plan and qualified and experienced management. Often private lenders lend money to businesses that operate in areas that the lenders have prior experience with. In fact, there are many private lenders who specialize in lending only to businesses that operate in certain industries. In the case of loans to individuals, private lenders are most comfortable funding mortgages because

the house stands as security against their loan. Contrary to popular perceptions, private lenders do not charge irrationally high interest rates. In fact, most private lenders charge reasonable rates keeping in mind the level of risk that they are undertaking. For instance, in the case of mortgage loans, private lenders typically base their rates and fees on the area, type of property, degree of risk they perceive and the estimated costs of administration and collection. Private lenders who are lending to businesses are also usually willing to be flexible when it comes to rates or to structure the loan creatively if they feel confident about the future prospects of the business.