As an investor one of the most important things that you'll want to realize is that banks are not the only place that you can turn for loans. In fact, there are many people who are willing to invest in the idea that they, too will profit financially from the investment. If you are seen as a good investment, in other words, they feel that you can give what you're promising; they will be willing to invest in you without the traditional hassles of going to the bank for such a loan.

A private lender may be a wonderful source for money for your investment idea. The biggest difference between a private lender and a bank is the fact that a private lender is looking into the investment more than your credit history. A bank sees the idea, but is really more interested in your credit standing and your debt to income ratio. If they feel that you, the person, are a good credit risk; that you will pay back your debt regardless of the success of the business, they will approve you for the loan and this will be the beginning of a long process. A private lender on the other hand will like to see a good credit rating and debt-to-income ratio, but they will place their focus on your business idea. If they feel that your idea will bring large profits, even if your credit isn't perfect, they may be willing to invest in that idea. If they decide to invest, they can usually get you the money within a few days. This is much shorter than the process you'd have to go through with the bank.

Another tremendous benefit to a private lender is the fact that through discussion with you the amount that will be borrowed will be decided upon. If you find later that you need more money for some unexpected problem with your investment such as re-wiring a house or something along those lines, a private lender can do that with a little conversation rather than another long drawn out loan process. The terms for paying the loan back will be more flexible with the private lender as will the flexibility of those terms. If you run into trouble in the repayment you can speak to the lender and work out some short term solution until you are able to resume full payments. All decisions of repayment and terms will be between you and the lender.

The main benefit to the private lender to some is the ability to avoid a hard money loan. This type of loan (hard money) is one that caters nicely to those that are having financial difficulty. They are willing to loan money to those that have credit trouble or have had credit trouble in the past. The good part of that is quickly dwarfed by the downside. A hard money loan will have very high interest rates and a strict repayment term. If the loan is defaulted on, the hard money lender will have the right to claim the property and sell it in order to recoup the loss of the loan. You will be putting yourself and the property you're investing in at great risk through a hard money loan. The term of a hard money loan will come to maturity much faster than with a private lender. A private lender will not be as worried about your credit and they will be willing to work with you to stay in good standing with the payback of your loan. In some cases, you may be able to borrow the entire amount of investment into the property including any necessary repairs or updates and pay the entire amount of the loan back when the property has been sold. No bank or hard money loan will allow this type of term.

Some may think that this all sounds great if you can find a private lender willing to work with you. There are more places to look than you may think. A good place to start is with the local investor's association. Most areas should have some association made up of local investors. Since these people have been in the investing game for some time, probably, at least some of them may have had dealings with a private lender. If you can find some that have, they can also give you some tips as to how to appeal best to the lender. They will know what's important to the lender and what things they would like emphasized. This will help you to land the loan you're looking for.

Some other places you may want to ask around about private lenders are your local professionals. Local doctors, lawyers, or dentists, may be private lenders themselves, or they may know people that are. They may be able to again tell you exactly what they or their acquaintances are looking for in a business proposal. They will give you tips as to how to present your business plan and what kind of things included will get you the loan you're looking for.

Friends and family would be the next area that you may want to investigate. You may think that you'd know if they could help you, but you may be surprised. Your aunt's cousin's sister-in-law's little girl may have had a teacher that does private lending. It's always possible so if you're thinking of putting together a business plan and investing in some real estate, commercial or residential, be sure that everyone you talk to knows about it. You may find that there are people among those that you know that can help you get exactly what you're looking for.

A Google search will also help you when you've exhausted all other avenues. You can do a search on “local private money lenders” in your area and the internet may just be able to give you a place to start. You can start calling around from there and through talking to the first on the list, you may be able to find the others.

Wherever you find your investor, know that they are there to help you and themselves with the profits you are both looking for. Be sure that there is paperwork between you and your lender and make sure you have only one lender per property. That will help avoid confusion and may build a lasting relationship between you and your chosen lender. This will keep your profits coming and make your lender money at the same time.