Private Lenders Vs The Bank - The Differences

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Private Lenders and Banks can both provide your business with the funding it needs to carry out the projects that have been undertaken. However, private lenders and banks work in their own ways – meaning that the funding you are provided with can work completely differently. And for those in the property sector, this begs the question of whether it’s better to borrow from a private lender or directly from the bank.

The most common factor that differentiates a private lender from the bank is that the majority of private lenders have much more lenient requirements compared to the bank whose criteria for loans can be much stricter.

Other differences between private lenders and the bank include:

Timeframe:

You will often find that private lenders will be able to secure a deal and provide you with funds much quicker than the bank. Private lenders are able to achieve these feats in as little as a few weeks from start to finish, whereas banks may take closer to 2-3 months to achieve this.

This is because private lenders are often more lenient with their requirements – allowing them to process your inquiry at a much faster rate than the bank. Banks are much stricter and can have unbending criteria which can make it much harder to become eligible for funding – prolonging the lending process as it takes them much longer to identify whether you are eligible or not.

Furthermore, private lenders can deliver funding much more quickly than a bank as the demand for funding is lower. Most people will go to the bank for funding which can cause a large backlog of applications that need to be processed – causing a much longer wait for funds. Meanwhile, private lenders can process applications in a shorter space of time as the number of funding applications they receive is far less.

Interest Rates:

One of the main things that set private lenders and banks apart is interest rates. Banks typically offer lower interest rates than private lenders – especially when it comes to property. Interest rates at bank branches compete with one another to provide to most value-for-money funding solutions, whereas private lenders have less worry when it comes to competitors.

On the other hand, private lenders’ interest rates are commonly much higher than the average bank. This is because private lenders face a much higher risk when distributing funds than banks do. However, when it comes to property investments, private lenders are a much more feasible source as organisation fees can range from 1% or less of the total loan offered – making it the much better option when selling a property with higher expected returns.

Credit Scores:

When applying for funding via the bank, your credit score is the main factor that the bank will consider when deciding whether to approve your application for funding. And when applying for a bank loan, if your credit score does not meet their criteria, it’s almost certain that your request will be denied.

Private lenders do take credit scores into account; however, they are not the main factor that is considered when it comes to loan approval. Instead, private lenders normally consider the borrower’s ability to pay the funds back.

How Can We Help You?

As seasoned property investors, we understand that seizing opportunities requires swift and proactive decision-making. Where traditional lenders are restricted by inflexible parameters, we provide fast, agile funding solutions with an agreement in principle within as little as 48 hours.

So, if you are looking for funding to grab a property at auction or to begin developments on your next project, we’d love to hear from you.