Monday, November 08, 2010
QUICK INTRODUCTION TO PRIVATE MONEY LOANS
BELOW YOU’LL FIND INFORMATION THAT CAN INCREASE YOUR CHANCES of getting private money funding. Understanding the ins and outs of private money could make the difference between getting money and not getting money. However you don’t need to memorize anything and there will be no test on this material).
WHAT MAKES A LOAN A PRIVATE MONEY LOAN?
1. Traditional institutional lenders like banks, trusts, pension funds, or credit unions are not private lenders, although some have units that deal with private money.
2. Private lenders may be individuals, corporations, venture capital firms, limited partnerships or certain other types of business entities.
3. Private money loans are typically non-conventional commercial real estate loans secured by real estate. They are often called hard money loans.
4. Hard money lenders make private money loans. Many private money lenders make hard money loans.
TWO MAIN TYPES OF PRIVATE MONEY FUNDING ARE:
5. Loans for business or real estate , which must be paid back over time
6. Investments in a business or real estate project, which do not have to be paid back.
Investments come from wealthy private individuals (“angels”) or groups such as venture capital (VC) firms. Investors may take part ownership of a business to earn a return on their investment as the business grows.
POTENTIAL ADVANTAGES OF PRIVATE MONEY include:
7. Private lenders are less bogged down by bank paperwork, government regulations and institutional protocol
8. Time from initial loan request to funding is faster
9. Private money loans are more flexible. For example, private lenders and investors are more likely to offer funding to “high risk” business or real estate deals.
BORROWERS CAN USE PRIVATE MONEY LOANS for many business and real estate purposes, although lenders can restrict loans to specific uses. Common purposes of private money loans include:
10. Rehabbing a property
11. Acquiring bridge money
12. Providing short-term operating capital
13. Equipping an office or research facility
14. Making a down payment on real estate
15. Buying real property
16. and more
Business Angels are wealthy individuals who invest a portion of their money into real estate or a business in the hope of making a good return on their investments. These investors may come to the rescue of a new and promising business that finds it hard to obtain financing. They generally seek companies or projects that:
Show great profit potential
Will grow fast
Are more than small “mom and pop” types of businesses
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