Most common things that Private Lenders Look for in Applicants
Private lenders can offer a more flexible and personalized loan process than traditional banks, but they still need to be assured of the borrower’s ability to repay the loan. Here are some of the things private lenders typically look for in applicants:
1. Credit History:
Even though private lenders may have more flexible standards than banks, they will still typically review an applicant’s credit history to get a sense of their past borrowing behavior. A good credit score can be an advantage, but a less-than-perfect score doesn’t necessarily disqualify an applicant.
Private lenders will want to see evidence of steady income that’s sufficient to cover the loan payments. This can be from a job, but also from other sources like rental income, dividends, or a business.
3. Debt-to-Income Ratio (DTI):
his ratio compares the amount of debt an applicant has to their income. A high DTI ratio may suggest that an applicant could have trouble making loan payments.
Many private loans are secured, meaning the borrower offers an asset — such as a home or a car — that the lender can take if the borrower fails to repay the loan. The value of this collateral is a key consideration for the lender.
5. Investment Plan (For Business or Real Estate Loans):
If the loan is for a business or real estate investment, the lender will want to understand the borrower’s plan for the money and how they intend to generate a return.
6. Exit Strategy:
Hard money lenders often offer pre-approvals for their loans, which can greatly speed up the funding process once a specific property has been identified.
In some cases, such as business or real estate investing, a private lender may consider the borrower’s experience in the field.
8. Personal Character:
Private lenders might also take into account an applicant’s character, reputation, and integrity. This can be especially true in smaller communities or for lenders who have an ongoing relationship with the borrower.
Keep in mind that criteria can vary widely among private lenders. Some might place a lot of emphasis on credit scores, while others are more interested in collateral or the potential profitability of an investment. It’s also worth noting that private lenders’ interest rates are often higher than those of traditional lenders, reflecting the higher risk they take on.