Where do Hard Money Lenders get their Funding?
Hard Money Lender funds come from one of three sources. Personal funds, a portfolio of investors or a public fund with money raised from many different investors similar to a REIT.
The first, a lender who uses personal funds, is likely the rarest. There simply aren’t that many lenders out there with enough personal funds to meet the demand for their service.
The second, a lender who has a portfolio of investors for each deal, is fairly common. These lenders generally have a pool of investors they can bring each deal to. The investors will then decide whether or not to invest in the deal as presented by the lender. Some lenders who use this method can have trouble raising funds for certain deals and may make promises to a borrower that they can’t keep. However, most of these lenders have investors who trust their judgement and jump at the chance to invest in any loan the lender brings them.
The third, a lender who raises funds from many different investors to create a pool of money or “fund” that they then lend out of. These lenders are becoming more and more common and the industry grows. One advantage to these lenders is that there is no risk that the lender won’t be able to bring the money to the closing table. Of course these lenders are a bit more regulated and there may be some extra hoops to jump through to get the deal done.
What Qualifies a Private Lender?
As industries go, there is not a whole lot of oversight for private lenders, so there is no real qualification. Private Lenders must adhere to consumer or commercial usury laws in each state, but other than that there aren’t a lot of regulations for the industry and no real qualifications other than having the money to lend and the knowledge to get it done.
Contact H&O Capital for information on loans we provide.
