Private lenders set their own lending criteria. There can certainly be some flexibility there and that’s just another advantage working with a private lender but in general, the private lender has established underwriting guidelines in place. And just like other lenders such as a bank or a mortgage company, compensating factorsthere can be “compensating factors” that can get a loan request that’s not yet ready for prime time in to the “approved” category. Let’s look at three things borrowers can do to get a private lender to go ahead and issue an approval.

1: More Equity. This is typically the most common way to ease a private lender’s concerns. Many private loans today require at least a 30% down payment from the borrower but if there are some things that are holding the private lender back, more cash at the closing table can allay a lender’s fears. At minimum should the loan go into foreclosure, there will be more than enough equity remaining to sell the property and still turn a profit, even after all selling costs are considered.

2: Have a Buyer. Private lenders want to see a bona fide exit strategy or an executable plan that clearly shows how the private lender will be paid back and when. If a borrower for instance wants funds to acquire and rehabilitate a 2-4 unit property, a market analysis can be included in the loan request showing what other 2-4 unit properties are selling for and for how long. If the private lender sees the possibilities but is still not fully convinced, the borrower can show a sales contract for the 2-4 unit property along with an approval on the buyer from a bank.

3: Cross-Collateralize. Still not convincing enough? If the private lender is still entertaining your presentation but has not yet come to a conclusion, you can always cross-collateralize properties you already own. By placing a lien in the private lender’s name on other real estate, it further solidifies your application. Once the project is sold, all liens are released.