As with hard money loans, private capital loans are secured by an asset, most commonly commercial real estate. Savvy real estate investors recognize that private capital loans have benefits that make them a good source of funding: speed, investment knowledge, flexibility, and trust.

Who are private capital lenders?

They can be individuals or companies, though many are small businesses, and their lending can be restricted to borrowers in a small community or across the country, though most will have an area in which they specialize. These lenders prefer to lend in the first lien position, thus ensuring that they are the first creditor to receive compensation in the event of a default. The higher interest rates and lower loan-to-value (LTV) ratios that they typically offer also protect their interests and allow them to finance loans that are viewed as higher risk.

What are the five main benefits of private capital lending?

1. The private capital underwriting process does not have to conform to the same federal regulations as traditional bank lenders, so there is less red tape to go through. Most private capital loans can be funded in a matter of weeks.
2. Investment knowledge. Private financiers often have greater knowledge of how real estate investment, especially commercial projects, works than their traditional lending counterparts. They’ve seen both successful and unsuccessful ventures and they may have experience troubleshooting property and project issues that your property might encounter.
3. Additional funding. Private lenders understand that real estate investors often need more than just the money to purchase the property, but also money to cover the costs of rehabbing the property to increase occupancy (for rental properties), or to refinance or sell the property. This kind of additional financing can be difficult to obtain from bank lenders.
4. Loan terms, including LTVs and interest rates, are determined based on the property and the borrower and can be customized to fit the borrower’s needs rather than the borrower being forced to adapt their project to the lender’s requirements.
5. Private capital lenders place more weight on a borrower’s character than their credit score, which leads to the development of a relationship between borrower and lender. Many real estate investors will use the same private capital lender for multiple projects, knowing that the trust that has been established can help them obtain loans that benefit both them and their lender.

The other benefit of dealing with a private capital lender is that borrowers can establish a more personal relationship with their lender because they meet with that lender face-to-face, rather than through an intermediary as is typical with bank lenders. If you have a project that needs private capital financing, contact Montegra at 303-377-4181.