Understanding Private money loans

Do you have a fantastic idea for a business or product? Have you found the ideal property to develop, but don’t have the means to do it? Maybe you want to expand your successful business, but the bank isn’t willing to risk a loan? Regardless of your reasons for seeking a large amount of money to use in a business venture, there are an amazing number of private money loans which can provide you with the funding you require.Related image

To begin with, private loans are made by investors who are looking to get a better rate of return than they would from a normal investment vehicle. For instance, while a CD might yield someone a four to six percent rate of interest over the course of six months to a year, a private loan is likely to return upward of ten to fifteen percent in the same amount of time.

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The downside for this great return is that the investment tends to be extremely risky in comparison to other vehicles. Consider the assured stability of a certificate of deposit or even a mutual fund compared to the inherent risks of a start up business venture or the development of a large-scale corporate park. Of course, it isn’t just enormous projects that are being underwritten through private money loans, there are also such things as small businesses, online companies, and a large array of other ventures that begin operations thanks to a private investor or two.

The way that such loans are made can also vary quite widely. For example, there are many independent contractors who seek out investors in order to help them acquire homes or properties to renovate or rehabilitate and then to sell for an enormous profit. Depending upon the property, the lender might receive ten to twelve percent in interest on the sum of money they lend to the entrepreneur. In addition to promising them the financial returns, the borrower will also hand over a first mortgage or a promissory note for the funds as well. This guarantees that the investor will have some sort of saleable asset should the business venture fail to yield the returns or even any profits at all, but it doesn’t usually add up to the amount which was initially invested.

Interestingly enough, financial industry statistics also indicate that the largest number of private money loans are made to entrepreneurs or businesses within a fifty mile radius of the investor’s home base or office. The reasoning for this isn’t exactly understood, but it is known that most people seeking startup investments fail to get the funding required because the management team or the entrepreneur are not well-known to the lenders.