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What is a Direct Lender? (private/hard money) - YouTube

Channel: Private Lender Link

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have you heard a private or hard money

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lending company state that they are a

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direct lender and wondered what that

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means and why it matters

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in this video i'll explain what makes a

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lender a direct lender

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how it affects the loan process

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and how to find direct lenders that

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offer private mortgages for both

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commercial real estate and residential

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investment properties

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i'm rocky botani ceo of

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privatelenderlink.com where investors

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and brokers can easily find direct

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private hard money lending companies if

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you're in the investment real estate

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business and want to gain insights into

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private mortgage lending subscribe to

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our channel and get notified every time

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we release a new video

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the meaning of a direct lender is

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subjective and you may hear several

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different opinions on this topic

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the easiest way to define a direct

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lender is a loan originator that funds

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loans from their own balance sheet

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meaning they have the funds in their

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bank account and they wire the loan

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amount at closing however it's not that

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simple while there are many private

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mortgage loan originators that do fund

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loans using their own balance sheet

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there are a few other capital structures

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used in private lending which in my

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opinion are still direct lending if a

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loan originator is not funding the loan

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from their own bank account they are

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likely using one of three capital

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structures to fund the loan

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the first structure is what i call one

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investor one loan the loan originator

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underwrites the deal and one high net

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worth individual investor or family

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office will wire the funds at closing

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these investors only work with loan

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originators so you can't borrow from

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them directly

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the second structure is a syndication

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meaning the loan originator underwrites

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the deal and raises capital from

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multiple individual or family office

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investors who all wire a certain

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fraction of the loan amount at closing

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and the third structure is a capital

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partnership with another private lending

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company

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in this scenario both the loan

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originator and the capital partner

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underwrite the deal together and the

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capital partner wires the entire loan

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amount or the majority of the loan

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amount at closing

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in all three of these scenarios the loan

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originator is not using their own

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balance sheet to fund the loan so you

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may argue that this is not direct

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lending however in my opinion it is

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still direct lending if one key

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condition is met and that is the

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investor or capital partner is not

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charging an origination fee also known

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as points

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when the lender is ready to commit to

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your loan they will provide a term sheet

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or loi and this document will state all

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the fees that the lender charges

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if the document shows that another

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company or entity is to receive an

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origination fee in addition to the

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lender who you're communicating with

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that to me is not direct lending

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this scenario could be considered

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brokering but it's more likely that the

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loan originator has a wholesale or

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corresponding partnership with a larger

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private lending company which also

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offers retail lending directly to real

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estate investors

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the whole topic of being a direct lender

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is mainly a concern for mortgage brokers

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but if you're a real estate investor it

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may not matter because you won't always

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get the best terms from a lender just

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because they are direct

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don't worry so much about where the

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money is coming from

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instead focus on the terms offered by

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the lender

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i recommend you get two or more term

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sheets and compare them you may find

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that the loan originator who has a

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capital partnership with another lender

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offers better terms than a direct lender

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because what typically happens in

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capital partnerships is the lender who

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is actually funding the loan will reduce

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their origination fee down to half of

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what they normally charge so that the

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loan originator can charge an

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origination fee as well and still make

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the loan fees competitive as a whole

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and if you try to circumvent your loan

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originator and go directly to that

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capital partner you likely won't save

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any money so how does working with a

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direct lender affect the loan process

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and the time to close

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you might assume that working with a

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direct lender means that your loan will

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get funded faster but that's not always

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the case

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loan originators who get their capital

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from multiple investors or the ones who

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have a capital partner may be able to

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fund just as fast as lenders who have a

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balance sheet

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there's a lot of capital available in

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private lending these days

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serious investors and capital providers

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are ready to deploy their funds right

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away and don't want to miss out on a

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good loan

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if there's an urgency to close a loan in

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three days the lender should be able to

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tell you upfront if they can make it

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happen

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it doesn't matter so much whether the

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loan originator is a direct lender or

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not

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so long as they can execute and get the

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loan funded on schedule

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if you're looking for a private or hard

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money lender use our website

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privatelenderlink.com as a resource

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there's no fee to search and almost all

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the lenders you'll find on the site are

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direct lenders you can view each

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lender's profile to learn about their

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guidelines and reach out to them

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directly

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being a direct lender is the main

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requirement to be listed on our website

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and the reason is many of our site's

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users are mortgage brokers

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although some of the companies listed

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use capital partnerships for certain

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types of loans all lenders are only

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allowed to promote their direct private

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lending programs on our website

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two search categories on the site have

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exceptions to this rule

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residential owner occupied and small

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business lenders

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if you found the content in this video

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to be useful please click the like

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button and be sure to check out our

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