Why Borrowers Use Private Money

Summary

Private money lending is often less about replacing conventional financing and more about solving situations conventional lenders are not structured to handle.

This Alliance Portfolio video looks at several common reasons borrowers and brokers consider private financing, including transactions with tight timelines, unique business-purpose scenarios, properties that fall outside institutional guidelines, and borrowers or entities with circumstances that require a more flexible underwriting approach.

Examples include income-producing residential, mixed-use and commercial properties, as well as loans involving corporations, trusts and partnerships.

The process begins with the scenario itself: the property, the amount needed, the timing, the use of proceeds and the borrower’s plan for repayment or exit.

Key takeaways

• Timing can matter.Private financing may be useful when a transaction cannot wait for a conventional lending process.
• Some properties do not fit standard lending boxes.Mixed-use, commercial and other nonstandard properties may require a lender willing to evaluate the transaction directly.
• Borrower and entity structure can affect financing options.Corporations, trusts, partnerships and other business-purpose borrowers may have needs that differ from conventional residential lending.
• The scenario comes first.Private lending allows the lender to evaluate the property, purpose, timing and exit strategy rather than relying only on a standardized loan program.