Who are private money lenders?


Quick Answer

Private lenders are people who make loans to business ventures with their own capital, rather than the capital from a bank or investment firm, according to About.com. Private lenders tend to specialize in higher-risk loans because they are willing to take additional risks for higher returns.

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Full Answer

People who are rejected by banks but do not want to give up a portion of their businesses to venture capitalists or other investors may turn to private lenders, states About.com. Private lenders engage in due diligence in a manner similar to banks in that they look for high-quality business plans, realistic forecasts and borrowers with experience and financial stakes in the businesses they operate. Private lenders may also be open to restructuring loans and providing advice to borrowers.

Those looking for business funding should sell their business ideas to banks and brokers with as much enthusiasm as possible, as private lenders often network with others to find their investment opportunities, notes About.com.

People who get loans from private lenders may still have to provide a personal guarantee against the loan, such as personal property, homes or other valuables, notes Entrepreneur. Business owners who have to sign personal guarantees to secure loans should try to limit the dollar amounts of the guarantees and shorten the length of time guarantees are in place.

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