Most common private lending mistakes to avoid

Private lending attracts investors by high interest rates, but it is also associated with increased risk. The borrower may not repay the private money loan on time or even at all. Therefore, private money lending needs a powerful strategy that will reduce this risk and provide a competitive advantage. See our 5 tips for becoming a successful lender to know how to grow a thriving private lending business. In this article, you can also learn the traps that are waiting for you on your path to success and how to avoid them.

Loan servicing software and other tips for private money lenders

Below is a list of the most common mistakes that private lenders make.

Private lending mistakes to avoid

1. Overestimating the value of borrower's property

Private lending and estimation of borrower's property

To exclude the possibility that the borrower will fail to repay his loan, private lenders usually ask for borrower's property as collateral. In the event of default on the loan, the lender will get this property and can sell it to recoup his money. Overestimating the value of client's property can lead to serious loss of profit or even not receiving it, so it is always worth spending time on a thorough verification of all the data and figures.

2. Being unfamiliar with the foreclosure process

Private money lending and foreclosure process

Foreclosure is a necessary process when the borrower stopped to make loan payments and the lender have to force the sale of borrower's property used as collateral. The process of taking possession of the collateral requires great effort and caution in order for all rights have been respected. Involve only the most experienced lawyers and accountants, if do not want the foreclosure process to drag on for many months.

3. Failing to properly check the investors

Private money lending mistakes to avoid

Private money lending is looking at the large investments, usually not less than $50,000 per deal. Conducting business with dubious investors can be a lethal mistake for private lender. If you want to get big returns on your capital without putting yourself at the extra risk, then try to avoid the investor without previous experience or the one who has defaulted on the loan in the past.

4. Lacking the good loan management skills and tips

Private lending software

Being a successful lender means not only to have the forethought and resourcefulness, but also to be able to qualitatively organize the loan servicing process for effective time management. Using advanced loan management software can significantly reduce the time required to checking candidates for loans, carrying out calculations, tracking the process of loan repayment, accrual of penalties etc. It results in the greater customer satisfaction and reducing risks.