Money lending is becoming a very popular method of getting a return on your investment dollar. A large group of society had their credit scores hit hard from the pandemic and many lenders are using greater oversight in who they lend to and the approval process has lengthened.

There are many ads about using the new found equity, but these lenders are also charging high closing fees, sub market appraisals and the time lines for closing has been dragging out. It is not just using the money for credit card consolidation there’s short term real estate loans, loans for getting homes up to date to sell, car loans, and many more investments.

Here are some examples that I have gotten from our clients:

1. Teaming up with realtors to loan their client money on a short-term basis to repair their home or spiff it up for sale. They can usually get a better price from contractors paying cash rather than asking them to wait until closing. Your investment is protected by a lien on the property.
2. Partnering with a flipper. This doesn’t necessarily have to be a house flipper. It can be an auto flipper, boat flipper, sports card flipper or anybody that buys and sells a product after upgrade of repair. In this situation, you can usually participate in the profits as well as get interest and an origination fee.
3. Debt reduction loans. It is becoming popular to reduce debt by offering an early payout on loans and debts – This will be true as interest rates increase and people want to be cash heavy to take advantage of deals.
4. Loaning to business on their receivables. Many businesses get stuck in cash short positions and are willing to pay above market rates to borrow against their receivables so they can buy new materials or even make payroll.
5. Subscription or membership-based businesses will borrow against their membership fees. This is sometimes necessary for they have an immediate cash need and the banking process is too slow.
6. Medical offices often borrow against their future Medicare and insurance payments. This is necessary for and government payment is usually slow and insurance companies are deluged with requests for payments.

There are many other things you can choose to lend money to your imagination is your only constraint, But and here’s the big but 😀. You must do the following according to our clients that have been successful money lenders.

1. Know the product or service you are lending on. It’s critical that you know the industry you’re lending to or have an extremely knowledgeable person guide you. Everybody who watches the HGTV Network thinks they can spot a good real estate deal, but in fact, there’s little reality to those shows.
2. If you are lending to a business make sure they have some skin in the game. An example would be, if lending to someone rehabbing cars and they come up with a cost to buy and repair and they are doing the work, have them use their labor as their contribution (and no administrative costs)
3. If loaning to a friend or relative get an agreement in writing. The minute the money is spent everyone gets amnesia.
4. Secure yourself as best you can, whether it be on the real estate title or chattel registration. Every state has different lien laws so seek a good local attorney to guide you.
5. Have a backup plan if payment doesn’t occur as planned. Can you get the property in your possession to recoup investment? Will you write it off? Whatever you do, have a plan.

The last part of the equation that every lender agreed on, is you should have a guide as to what criteria you will use for qualifying a loan. Never ever deviate from it. And if you do, which most people do, prepare for a total loss so repayment will be a bonus.

These are just a few tips that I hope will help make you a successful lender.