Private money lending packages vary wildly depending on the lender, loan purpose, and borrower profile—but knowing what to expect before you apply saves time and frustration. Whether you're a real estate investor seeking bridge financing or a small business owner exploring peer lending, understanding the components of these packages helps you compare offers accurately. This guide breaks down what's typically included and what to watch for.
Core Loan Terms
Every private money lending package starts with the essentials: loan amount, interest rate, and repayment timeline. Most private lenders charge 8–15% annual interest, significantly higher than traditional banks, but approval happens in days rather than weeks. The loan term usually ranges from 6 months to 5 years, with shorter terms common for fix-and-flip real estate projects and longer terms for business expansion or debt consolidation.
Interest rates aren't the only cost. Many packages include origination fees (1–3% of the loan amount), underwriting fees ($500–$2,000), and appraisal fees if collateral is required. Ask for a full fee breakdown upfront—some lenders bundle fees into the interest rate, while others list them separately.
Collateral and Security Requirements
Private lenders mitigate risk by requiring collateral. Real estate is the most common: a first or second mortgage on residential or commercial property. Some peer lending platforms work unsecured for smaller amounts ($1,000–$50,000), relying instead on credit score and income verification.
The lender will typically order an appraisal or valuation. For real estate, expect the loan-to-value (LTV) ratio to be 60–80%, meaning they'll lend up to that percentage of the property's appraised value. This protects them but also limits how much you can borrow against your asset.
Documentation and Due Diligence
A standard private money package includes:
- Promissory note (the binding loan agreement)
- Security agreement or mortgage deed
- Personal guarantee (you're personally liable if the business/property defaults)
- Proof of income or tax returns (for underwriting)
- Credit report authorization
- Loan estimate (Good Faith Estimate equivalent)
The due diligence phase typically takes 3–7 days. Peer lending platforms often skip some documentation for smaller loans, while traditional private lenders (like hard money firms) demand thorough financial records and property inspections.
Funding Timeline and Conditions
One of private money's biggest selling points is speed. Most packages fund within 5–10 business days once documents are signed and funds are verified. Compare this to conventional bank mortgages, which take 30–45 days.
Some packages include conditions that must be met before funding: property inspections, proof of insurance, or completion of title work. If you're buying a distressed property, the lender may require a contractor's estimate or proof of repairs. Real estate investors should clarify whether the lender allows construction disbursements (releasing funds in phases as work completes) or requires a lump-sum payout.
Repayment Structure
Interest-only payments are common, especially on short-term loans. You might pay only interest monthly ($1,500/month on a $300k loan at 10%) and repay the principal as a balloon payment at maturity. Some packages offer amortized payments (fixed monthly payments covering both principal and interest), which costs more over time but provides predictability.
Prepayment penalties exist on some loans—usually 1–3% of the outstanding balance if you pay off early. Clarify whether your package allows penalty-free prepayment, crucial if you expect to refinance or sell the asset quickly.
Investor Protections (Peer Lending)
If you're investing through a peer lending platform rather than borrowing, the package includes risk disclosures, diversification recommendations, and servicing agreements. Platforms typically hold loans in trusts and handle collections. Verify what happens if a borrower defaults—some platforms have loss reserve funds that cover a portion of losses.
Comparing Packages Effectively
Side-by-side comparison requires standardizing all-in costs. Calculate the Annual Percentage Rate (APR), which bundles interest and fees into one number, making it easier to compare across lenders. A 10% interest rate with 2% origination fees isn't the same as 10% with 3%.
Mercoly helps you find and compare trusted private money and peer lending providers in one place, so you can evaluate multiple packages side-by-side with transparent terms.
Frequently Asked Questions
Q: What credit score do I need for private money lending? Private lenders focus less on credit score than banks; many approve borrowers with scores as low as 580–620. However, lower scores may result in higher interest rates or stricter collateral requirements.
Q: Can I get private money for a business loan, or only real estate? Both—peer lending platforms and some private lenders fund business ventures, though real estate loans dominate the market. Business loans typically require stronger cash flow documentation and personal guarantees.
Q: Are private money lenders regulated like banks? Regulation varies by state and loan type. Some private lenders are licensed mortgage companies; others operate in gray areas. Always verify licensing with your state's financial regulator before committing.
Ready to compare real offers? Start exploring vetted private money and peer lending packages today.