Private Lending

by Peter Rizzo

Life Settlements in a Retirement Account? Think Again.

With the Fed raising rates and good people still rebuilding their credit from the Pandemic, Private Lending is becoming a popular investment for the savvy investor.

What is Private Lending?

Have you ever wanted to invest in a local business or loan money to a friend for their kitchen renovation? This type of investment is called private lending, and you can do it with a Checkbook IRA or Self-Directed Solo 401(k).

Private lending, sometimes called peer-to-peer lending, allows you to use your IRA or 401(k) funds like a bank and invest in debt-based assets, or loans, that matter to you. You might have heard people refer to private lending as hard money lending. This is because the loan is often issued and secured based on the value of collateral, usually real estate, rather than the credit of the borrower. But loans aren’t necessarily secured. They can also be unsecured which means they are not backed by collateral.

Loans usually fall into one of these four categories: personal loans, business loans, mortgage notes, and equipment or automobile financing.

A loan investment made by a Checkbook IRA or Self-Directed Solo 401(k), requires the creation of a promissory note. A promissory note is a written promise to repay debt under specified terms. Unlike private equity, a loan is repaid with interest rather than as an investment in exchange for shares of a company.

When considering debt-based assets, you might also hear the terms performing and non-performing notes. Quite simply, performing notes are notes that are being repaid according to the loan terms, while non-performing notes are loans where the borrower is in default. Just like any investment, it is important to do your due diligence and understand the terms and status of any debt-based asset you invest in.

Why Invest in Private Lending?

When you want flexibility and the opportunity to invest in smaller businesses or more personal projects, private lending makes that possible. You have the ability to seek out investments that fit with your goals and earn interest on the money that you lend. Private lending is a popular strategy for people who want to earn passive income.  Lending money to someone investing in real estate or business, allows you to get in on the action without having to purchase the property or manage the day-to-day affairs of the business.

Private lending is also a good option for people and small businesses to acquire capital without using traditional lenders. Because private lending does not go through traditional loan channels, the money can be available more quickly. It can also work well when someone cannot qualify for a traditional loan. Because of the higher level of risk and the difficulty of recovering the capital in the case of default, these types of personal and commercial loans are often shorter terms and offered at a higher interest rate than a loan acquired through traditional lending.

What Type of Loans Can You Invest In?

Mortgage notes are one of the most popular private lending investments. Using private lending to invest in real estate is a win-win for lenders and real estate investors. Private lenders can reap the benefits of a real estate project without taking on the whole project, and investors can get the capital they need quickly and without the hurdles that a traditional lender might have in place.

There are endless options. It can be a good choice for investors who want to lend money to help a small business get off the ground or to provide purchasing power for a business to acquire more inventory as they grow.  Private lending can also be used for personal loans, buying automobiles and machinery, educational expenses, or even helping someone pay off debt.

What’s the Process to Invest in Private Lending with a Checkbook IRA or Self-Directed Solo 401(k)?

In order to loan money from your Checkbook IRA or Self-Directed Solo 401(k), you will need to create a promissory note. A promissory note allows you to dictate the terms of the loan, the repayment timeline, an interest rate, and even what happens if the borrower defaults or does not repay the loan according to the terms. You are responsible to decide if the note will be secured or unsecured. Just like any investment in a Checkbook IRA or Self-Directed Solo 401(k), the account holder is responsible for all the due diligence when researching any investment.

If you already have a Checkbook IRA or Self-Directed Solo 401(k), then you’ll be glad to hear that using them to lend money is similar to other investments.

  • Once you have funded your Checkbook IRA or Self-Directed Solo 401(k), you are ready to invest.
  • Do all the necessary due diligence when selecting investments.
  • Draw up the loan specifics such as timeline for repayment and terms.
  • Initiate the note investment.
  • Once all documents are drawn and signed, send the funds to the borrower.

What Are the Rules for Investing in Private Lending? 

If you are using your Checkbook IRA or Self-Directed Solo 401(k) to loan money, you have to remember that all the rules and regulations when investing with a Checkbook IRA or Self-Directed Solo 401(k) are still in force. You cannot engage in prohibited transactions or lend money to a disqualified person. This includes not lending money to businesses owned by disqualified persons.

The potential for passive income through private lending is at your fingertips with a Checkbook IRA or Self-Directed Solo 401(k).  If you have other questions, schedule a one-on-one consultation, or call: 1-800 482-2760

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    1. Timothy Stauffer

      Are there any locations (websites) to offer my private lending services for real estate.

      • Peter Rizzo

        There is a site called Bigger Pockets ( that has many real estate ( private money lenders) investors as members). Many of our clients have been successful there