A good way to think about the term “private lender” is that it’s the opposite of an institutional lender, not the opposite of a “public lender.” A bank, after all, is a private company, just one that offers public accommodations.
A private lender, though, operates differently from a national, regional or local bank, a credit union, or other financial institution. A family member, friend or acquaintance can be a private lender, and so can a business.
A private lender is a person or entity that uses its capital to provide loans, such as for residential or commercial real estate investments, like Lightspeed Lending. Private lenders are not banks; they aren’t affiliated with banks or other financial institutions, either. So, while a private lender and a bank typically both make money from interest on a loan, (although your private lender dad might not charge you interest) that is where the similarities end.
It is important to know that when you are doing business with a private lender, the layers of approval and bureaucracy are absent – you are dealing directly with the lender. Of the types of private money out there, commercial private lenders are going to be more rigorous than deep-pocketed friends and family – they don’t know you, after all. But though a private lender may run a credit check, the minimum score is typically lower than what a bank might require. And if you have taken out a loan from a bank before, you may be surprised that a private lender offers more flexible terms – another benefit to borrowing from a private lender like Lightspeed Lending.