Lending based on the 3 Cs
If we say it once, we’ll say it again: private lending and private loans are not cookie-cutter. Lenders will differ in the 3 Cs (credit, capacity, collateral) they will consider and accept, or the terms they’ll offer based on those 3 Cs.
Despite this flexibility, when approaching a private lender you will need to know how to articulate the kind of loan you need. Private lenders get many requests for loans. Make it easy for them to immediately know if your deal fits their criteria; this will go a long way toward starting the relationship off on the right foot.
There’s a reason PMLG’s directory connects you with lenders based on just four quick criteria: these criteria represent the few “hard lines” private lenders tend to draw on whether they’ll look at a deal.
The most common “hard lines”
- Property type: Broadly, property is either considered residential or commercial. Which structures fall into which category can vary depending on local regulation and lender. For ease of talking about them and searching our directory, PMLG classifies them by whether a property houses people or businesses. You should know that private lenders tend to draw the most “hard lines” in this category. They prefer to complete deals on property typesthey are familiar with.
- Property location: Lenders choose who they lend to based on your property’s location. (PMLG connects you according to the state the property is in.) Lnders can be even more local than that – many operate on a metro level. Many wish to personally visit a property for due diligence and progress checks.
- Loan type: Lenders offer different loan types depending on how you will use the money. They will also differentiate based on whether you need the money short term (for as little as six months!) or long term (as much as the standard 30 years). They offer many nuanced products and terms based on these factors so it’s crucial to understand the terminology.
- Loan amount: Lenders will have broad ranges of loan amounts the can lend. This is based on the availability of the funds in their control and what’s “worth their time” in terms of potential profit. You may find that lenders will turn you down if you’re asking for too little, or charge you a higher percentage of the loan as a fee. These fees are also called loan points.
Together, these categories define your collateral. If the categories match the lender’s criteria, the lender’s next step is to review your capacity to pay. Like banks, capacity is always decided on a deal-to-deal basis. The final of the 3 Cs is credit, which PMLG doesn’t include in our directory search. Most private lenders are flexible on your score if your other criteria and loan terms are advantageous.