A private lender is an individual, group or small company that makes loans to individuals. The lenders either have their own cash to lend, or use lines of bank credit to fund transactions that meet their particular lending criteria. Private money is available for vehicles, to start up or expand a business and to finance film projects with the majority of lenders operating in the real estate industry. Lenders most often secure loans with tangible assets such as real estate and certificates of deposit.
Private lenders can be found worldwide, lending either locally or globally, depending upon personal preferences. If the lender chooses to provide multiple loans throughout the year, it may be beneficial to establishing themselves as a business entity. Local requirements may vary, but most often include the options of filing as a DBA or a corporation. “Doing Business As” allows an individual to operate under a business name. Filing as an S-Corporation may offer tax advantages, while filing as a Limited Liability Company can help protect personal assets from lawsuits incurred in the course of business.
Private lenders are not banks or mortgage companies. In the United States they are not federally regulated, therefore not required to make any federal filings prior to, during or after the lending transaction. At the end of the year, private lenders must include “interest income” on the IRS form 1040 or other forms related to receiving interest as business income.
If the private lender is a corporation and sells company stock to raise funds, then it is subject to regulations of the Securities and Exchange Commission and must file the appropriate paperwork with that agency. The term “securities” has broad meanings and in some states may include titles or deeds to property's held by a corporation. Private lenders should consult with a securities attorney within their own state for SEC compliance.
Though not usually required by law, a private lender will make public filings of specific documents to ensure protection of their interests. In private mortgage lending, the deed that lists the lender as the mortgage holder is filed in the county where the real estate is located. This ensures that they will be paid the balance of the note in the event the property is sold or refinanced, and in the event of insurance claims. Individuals lending private money for a business may file liens against equipment or other assets in the county where the business is operated, while any promissory notes are filed with the county of the debtor's residence .
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- Court Decisions and Ruling: Lifting the Fog on SEC Rules Regarding Private Lenders and Real Estate
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