If you’re in the middle of a lawsuit and need cash, private sources of money are one option available to you—but they’re not necessarily a great option. Money lent in these circumstances is considered “hard money” because this money is quite restrictive. It is actually easier to get the money once the approval is made, but the standards for qualifying and getting the loan are often very strict. Why? Because these private lenders are basically investors looking for the best rate of return possible. They want to protect their investment and capital the best way they can.
What can private lending look like?
High interest
For you, that means these funds will come at a very high cost. Private lenders might charge upwards of 10-15 percent interest to borrow their money, often rising as high as 18 percent interest. There may be points attached to these loans too. One point is equal to one percentage point of the loan. So, one point on a $100,000 loan is equal to $1,000. Lenders are likely to charge anywhere from two points up to 10 points and possibly even more.
Monthly payments
Private loans must be paid back monthly. The type of payment varies depending on the lenders, but is usually in the form of interest-only payments. This means that the borrower must make monthly payments that only cover the interest that the lender is charging for a borrower to use their money. At the end of the loan term, the borrower will have only paid interest—the lender’s expected profit—and must make what is called a “balloon payment,” which is usually equivalent to the initial loan amount.
Short-term solution
Another challenge for borrowers is that private loans are generally short term, ranging between six and 24 months. Thus, these hard money loans are not intended to be a long-term solution. Lenders want constant turnover so that they can reinvest their money and continue to collect interest. Longer term lengths are generally an abnormality, but sometimes a lender will make exceptions.
Complex application process
Private money lenders operate similar to banks in that they want information before they make an informed decision on investing with someone. This may include a lender requiring a borrower to fill out W-2s or provide banks statements. Like a bank, a private lender wants to protect their investment and see their money working for them.
Why pre-settlement funding
With term lengths that end only when a case ends, modest fees upon awarding of the settlement, and no monthly payments, pre-settlement funding is a great choice to get funds quickly. Private money lenders understand the money markets just as well as conventional lenders. However, experience in lending may not necessarily translate into knowledge of lawsuit funding.
If you need advance lawsuit funding, call Resolution Funding. We’ll help you understand your options and if you are a good candidate for lending, the process is quick. Fill out the form on our website or reach us at 855-529-2382.