Using Private Money for Funding
Whether you are reading magazines or watching the television, all financing discussions center on the banking industry. Taking it in, one would imagine your only option is to work banks for loans
This generalized notion of finance has been cracked this year. As banks start to fall apart, many are shocked to see the paper thin nature of the finance market. If you think this is bad, 2009 is shaping up to be much worse.
Lending institutions do something very interesting when they start feeling financial pain. They stop lending money. While they are happy to take in deposits, the hold on to it in an effort to balance out their books.
As we all know, money makes the world go around. When banks stop lending, borrowers look around for other sources. One of the popular choices is the private money lenders.
Private money is pretty much what it sounds like. It usually consists of a collection of wealthy individuals pooling their money in anticipation of loaning it to companies for profitable purposes.
Banks are creatures of habit. They only deal with certain loans that fit their comfort level. If a loan requires them to be creative at all, they will not write it. Fortunately, private money lenders will.
Remember, private money is not a bank. That means creative financing situations are not a problem. In fact, they are usually welcomed because they tend to mean more profits.
You might think the individuals who make up a private money lender might be a bit shady. They are not. They typically are a collection of high net worth individuals such as physicians, CEOs and so on.
Ah, but what is this going to cost me? The answer is entirely dependent on what you are trying to get financed. The private money lenders are in it for a profit. Sometimes the cost is the same as normal loans and sometimes more.
The early part of this decade saw a period of easy money lending, but that has changed. Getting a loan now can be brutal. Banks are being very tight, so look around. Private money is as viable an option as any these days.
Filed under: Business