You’ve spent years building your commercial real estate portfolio.
The cash flow is steady, the equity’s growing — and now you’re sitting on capital that could do more than just sit. What’s next?
Sure, you could buy another rental or pour it into renovations.
But if your appetite for active management is fading, why not become the bank instead?
Private commercial lending can be just as rewarding as flipping a triple-net lease for someone who understands CRE.
It lets you put your money to work without managing tenants, chasing contractors, or waiting for market swings.
And done right, it’s a low-friction, passive way to earn strong returns backed by hard assets, on your terms.
What’s more, you get to stay in the industry that you know inside out.
The best hard money loan lenders in this niche are often CRE veterans themselves because they’ve been on both sides of the term sheet.
What is private money lending in commercial real estate?
Being a private commercial lender lets you grow your income and keep your capital working while reducing the hands-on work that comes with owning and operating real estate.
You choose the deals, set the terms, and earn consistent returns backed by property.
As you gain more experience as an investor, you naturally begin to look beyond simple savings accounts to grow your wealth.
Parking money in a low-interest account doesn’t protect or expand assets in a meaningful way.
By providing loans backed by real estate worth more than the loan itself, private lending can be a lot less risky than property ownership in some cases.
This makes it an attractive option for those seeking strong, asset-backed returns.
Traditionally, real estate financing came from banks and government agencies. It’s not uncommon for investors to even source from insurance firms or pension funds.
However, strict requirements and drawn-out approval processes left many investors seeking alternatives. This gap created opportunities for individuals with available capital to step in and provide the funding investors needed.
Today, private money lending has become a crucial driver of the real estate sector, enabling investors to sustain and grow their careers.
For those with the right financial stability, becoming private money lenders offers several benefits. It can help diversify income and reduce exposure to certain risks, allowing them to steadily build wealth.
Related blog: The Role of Private Lender in Commercial Real Estate
Is private money lending suitable for you?
Private money lending is not for everyone. Just because you have a small surplus of cash doesn’t mean you should direct it toward loans. You have to know whether you’re prepared to assess risk and seize opportunities responsibly.
You might make a good private money lender if you are a commercial real estate investor looking to expand your portfolio. Knowledge of deal structures and borrower behavior goes a long way in underwriting loans.
But even those without CRE operating experience, but who have capital and a sharp eye for financial strategy, can become hard money loan lenders. Consider it if:
- You own an estate or a trust fund.
- You are a professional such as a doctor, lawyer, or executive with a strong income or surplus cash.
- You have come into significant funds, such as from a lottery win.
- You hold a sizable retirement savings account.
- You are a retiree interested in creating a passive income stream.
- You want to provide financial support to a trusted friend or family member.
- You are a tech entrepreneur with a successful business generating excess capital.
What is a ‘private money’ loan in commercial real estate?
At its core, a private money loan involves three main elements: a borrower, a lender, and detailed paperwork. The process may feel very similar to traditional lending, but there are distinct differences that make it faster, more personal, and less institutional.
Private lenders often charge higher interest rates compared to banks. However, their loans are also far more accessible, especially in situations where a traditional lender might reject the application.
Another advantage is speed. With a clearer and more straightforward approval process, personal lenders can typically make decisions and provide funding much faster than banks.
For many investors, this structure creates an opportunity to finance deals without using their own funds. It’s a win-win scenario.
Borrowers get access to capital when they need it, while private mortgage lenders generate income secured by real estate.
What are private lending companies in commercial real estate?
As demand for alternative financing grows, private lending companies now fund a growing share of non-bank CRE deals.
These private money lenders are usually groups of investors who pool their capital to fund more deals and maximize returns.
Like banks, private lenders earn income through interest payments, but their application requirements tend to be far less restrictive.
Many of these companies operate online, making them accessible to a wider audience. This allows borrowers to get a loan from private money lenders as an additional financing option without having to sit through bank meetings or wait for committee approval.
Meanwhile, it lets investors participate in lending without managing every detail personally.
Related blog: Private Lenders of Banks: What’s Better For Commercial Real Estate Loan?
How do you become a private money lender in commercial real estate?
Anyone can legally become a private money lender. However, they must comply with applicable laws and regulations such as usury laws. In some states, licensing or registration may also be required, especially if you lend frequently or advertise loan services.
Risk is always on the table — borrowers defaulting, projects stalling, or collateral values dropping mid-loan can happen. If a deal goes wrong, private mortgage lenders can face six-figure losses.
Proper documentation with due diligence and legal support is essential.
Private money lending requires discipline and prudence whether you’re independent or prefer to work alongside seasoned money lenders.
If you’re serious about moving forward, here are some practical steps to launch your private lending business with clear goals and safeguards in place:
- Establish your business and secure the necessary insurance.
- Decide on your preferred lending focus, such as short-term fix-and-flip loans or longer-term rental financing.
- Consult with a good lawyer to create the right business structure.
- Assess potential clients carefully by analyzing both risks and projected returns.
- Join peer-to-peer lending platforms or investor networks to connect with borrowers.
Types of borrowers private lenders encounter
As a private lender, you’ll encounter several categories of borrowers. While their projects and objectives differ, they all share a common need for fast and reliable funding.
After all, access to capital is everything in CRE — without funding, deals cannot move forward.
Even investors with available cash often prefer to secure private loans to maximize their opportunities.
Private money lending gives them the flexibility to grow without overextending their own resources.
With a loan from private money lenders, borrowers can move quickly and gain an edge in competitive markets.
Rehab and sell investors
These borrowers purchase and renovate distressed or outdated properties, and then sell them for profit.
Banks are often unwilling to lend on properties in poor condition, so these CRE investors routinely turn to personal lenders for quick-turn liquidity.
Speed is equally critical.
When they have access to capital at the right time, flipping properties becomes more efficient and profitable.
Builders and developers
Developers typically purchase vacant land with the goal of building residential or commercial projects.
But because many banks avoid speculative development, these borrowers turn to private lenders.
Speed of funding is also a major factor here. When borrowers have quick access to capital, they can keep their projects on track.
Rehab and rent investors
This group buys residential properties with the intent to renovate and hold them as rental income assets.
Like rehab-and-sell investors, they rely on private mortgage lenders to gain funding quickly.
Plus, they benefit from the greater flexibility that may not be available in traditional banks.
Value-add investors
When banks won’t provide funding for properties that aren’t yet stabilized, commercial real estate borrowers often use private loans as ‘bridge financing’.
A loan from private money lenders gives them the short-term flexibility to move forward while longer-term solutions are arranged.
Related blog: How to Get a Quick and Easy Private Lender Loan for People with Bad Credit
Getting paid in private money lending
Private money lending hands full control to the parties actually involved in the deal, making it more beneficial to both borrowers and personal lenders.
Instead of structuring the loan around fixed interest payments, private loans allow you to negotiate how and when you’ll be repaid.
This could open the door to additional perks and creative arrangements that aren’t available through conventional lending.
Below are the most common ways private lenders earn income.
Exit fees
With an exit fee arrangement, the borrower agrees to pay a set amount at the end of the loan term.
This fee is usually a percentage of the overall investment value.
In some cases, private money lenders negotiate a sliding exit fee that increases if the borrower takes longer to repay.
However, the exit fees increase when repayment is extended by several months.
Joint ventures
Some money lenders enter into profit-sharing agreements (often called joint ventures).
In these deals, you negotiate to receive a percentage of the final profits instead of — or in addition to — interest payments.
While potentially very profitable, joint ventures require a clear-eyed look at who holds risk and control, and what happens if things go sideways.
Commit only if you have confidence in the investment’s success.
Interest payments
The most common structure for private money lending involves interest payments. You agree on a set interest rate when the loan is approved, and the borrower makes payments accordingly.
Private money loans usually carry higher interest rates than traditional bank loans, making this setup particularly appealing to personal lenders.
Points
Borrowers pay ‘points’ as upfront fees in exchange for more favorable interest terms.
Calculated as a percentage of the loan amount, one point equals one percent of the total loan.
Some private money lenders prefer this arrangement because it provides a lump-sum payment at the beginning of the loan, in addition to ongoing interest payments.
Borrowers may also propose points as an incentive to secure the loan.
Related blog: 5 Major Trends to Expect in Private Commercial Lending
Pro tips to become a private money lender in commercial real estate
Private money lending gives you the chance to act like the bank — funding other investors’ deals instead of acquiring properties yourself.
By now, you’ve seen how profitable this approach can be. Still, it’s worth keeping a few practical strategies in mind to protect your investments and set yourself up for long-term success before diving in.
Start small
Decide on a lending range that feels comfortable for you and stick to it.
Most new private money lenders make the mistake of stretching themselves too thin, leaving them overwhelmed down the line.
Review your finances and identify the level of risk you’re willing to accept, so you can establish clear guidelines for the kinds of deals you’ll fund.
If a borrower asks for more than you’re prepared to offer, don’t hesitate to refer them elsewhere.
Master the details
Familiarize yourself with the different types of borrowers and investment models, from rehab-and-sell to buy-and-hold strategies.
This knowledge will help you evaluate whether a proposed deal makes sense.
Borrowers will naturally highlight the positives, but it’s your job as the lender to determine if the numbers add up and whether the investment is truly viable.
Focus on local opportunities
While there are deals across the country, some of the best opportunities may be in your own backyard.
By starting locally, you can meet borrowers in person and build stronger relationships.
Local lending also gives you better insight into the market conditions that affect your borrowers’ success.
You can expand into other markets once you’ve gained local experience.
Work with a reliable attorney
You may be the lender this time, but contracts and compliance are still critical.
From loan agreements to legal protections, having an experienced real estate attorney on your side is non-negotiable.
They’ll help you structure deals properly and ensure that you remain compliant with all regulations.
Over time, their expertise will prove invaluable.
Maintain transparency
Avoid exaggerating your experience or portfolio to attract borrowers.
No matter where you are in your investing journey, let your track record speak for itself.
Misrepresentation can hurt your credibility and long-term success. Stay transparent and build your lending business on honesty and consistency.
Keep learning
Even though you may not be purchasing properties directly, you are still very much an investor.
So, don’t forget to keep yourself up-to-date on everything relevant, from real estate market trends to financial developments and regulatory changes.
Learn how to control the terms of the deal
As the lender, you have full authority to set the loan terms — from the interest rate and repayment timeline to the closing costs and down payment requirements.
That said, there’s no single formula for how to structure loans, as they vary from one deal to another.
So always review the property details and the borrower’s proposal carefully before finalizing terms.
Both parties are bound by a contract when they agree on all terms, but you can adjust your approach for future deals to align with your financial goals.
Understand private money lending regulations that apply to you
Before you start lending, make sure you understand the state and federal rules that apply to private money loans. Issuing more than a certain number of loans per year could trigger licensing requirements in some states, so start by checking your state’s lending thresholds, licensing rules, and usury laws.
Then review how those rules apply to your intended deal. If anything’s unclear, consult a qualified attorney familiar with private lending and commercial finance.
Related blog: When A Private CRE Lender Checks Your Credit Report
Explore the possibility of becoming a private lender in commercial real estate
There are opportunities for both sides of the transaction in private money lending.
Borrowers benefit from faster approvals and broader access to funding, while lenders gain the ability to earn income secured by real estate.
One of the most practical ways to get started is by joining a pool of established private money lenders.
Besides reducing your individual risk, this also gives you exposure to how other lenders evaluate deals, manage risk, and structure terms — and all of these insights that can strengthen your own lending strategy over time.
Contact us
Ready to explore private money lending? Join our network of investors at Private Capital Investors.
As direct private lenders, we take a distinct approach to every client and investment.
Our goal is to build long-term partnerships by acting as a funding source and as a trusted commercial lending advisor.
With more than 25 years of experience in the CRE industry, we have helped investors secure over $8.5 billion in funding.
Our national recognition reflects both our expertise and our dedication to supporting clients through every stage of their investment journey.
We are committed to helping commercial real estate investors across the country obtain the capital they need to bring projects to life.
In addition, we provide CRE investors the right opportunities to become private money lenders with us.
In addition to our U.S. presence, we also extend our services to international clients, offering access to funding solutions tailored to global opportunities.
Call us at 972-865-6206 to connect with our team, or email info@privatecapitalinvestors.com for more details.
