Private vs. Public Lenders: Know Your Options

If you’re looking for a loan, seeking a private lender could be beneficial for people interested in investing in property. Because of how quick the turnaround time is from requesting and receiving a loan, private lenders are oftentimes the preferred choice over bank loans.

In this article, we’ll learn what exactly is a private lender, as well as the pros and cons of seeking a private versus public loan.

What Is a Private Lender?

Private lenders are experienced individual lenders and brokers who help clients invest and resolve their financial endeavors. Unlike public lenders, you can get approved and have access to your loan faster, allowing investors to quickly act on deals they find or pay off debts before they accrue.

These lenders base their transactions more so on relationships than transactions. In addition, there’s more leniency in the approval process, qualifications, and even setting up a unique payback plan.

Public vs. Private Lenders

Whether you prefer to use a public or private lender, it’s important to understand differences and similarities between the two. The Borrower’s Guide to Private Money Loans outlines a detailed comparison between public lenders (e.g. banks, financial institutions, credit unions) and private lenders.

Public Lender Private Lender
Common lender titles Agents, brokers, loan officers, mortgage brokers, mortgage bankers. Brokers, loan brokers, mortgage bankers, private money lenders.
Borrower profile Typically those with good credit and documented income sources. No set profile; each potential borrower’s credit and income are evaluated uniquely.
Guidelines and profiles Set according to government agencies such as Fannie Mae, Freddie Mac, FHA, VA, USDA, etc. Few to no set standards; guidelines are set according to unique needs. This makes approval more flexible, conventional, and faster.
Due diligence Little to no concern. Compliance is set at the final review of documentation, terms, and signing. Personal guarantee, opinion letter, and extensive research into the borrower’s entity and collateral is required.
Interest Competitive rates, typically lower than private lenders. Rates begin at around 8% and can increase depending on the unique criteria of your loan request.
Collateral Typically against a particular subject property. Can be property outside the specific subject property.
Credit An important factor in loan qualification; can even outweigh documented explanations. Considered, but ultimately up to the investor on how important it is. Situation and cause of credit is analyzed over solely the score.
Underwriting Performed by an automated underwriting software, and then finished by an employee of the public lending house to determine the outcome. Based on the type of collateral offered.

Are Private Lenders Right for You?

Based on your unique situation, either lending option may be a better fit for you. Explore your options today at a First Bank near you!



Borrower’s Guide to Private Money Loans: