Original opinion posted by David C. to the moderator at bigpockets.com:
I don’t see the deception in calling a hard money lender a private lender, private lender would actually be more accurate thus less deceptive, in my view, because it IS private money. I know private lenders that do everything legally, they market privately etc, then do the loan through a broker, the broker gets a relatively small fee, and their terms are the same or even harder that the traditional hard money lender. The terms are morphing together, why not use the one with the best marketing appeal.
The terms may be getting morphed by hard money lenders who what to sound like something they're not. By this definition a bank could claim to be a "private money lender" because the money they're lending out comes from private individuals who make loans. Most people would consider the bank that claim to be disingenuous if not outright deceptive. Sorry, I don't see a company that makes hard money loans by taking in funds from private individual any different.
Response from Jon Holdman (Real Estate Investor): But again, as Bill points out, these terms aren't trademarked and their usage isn't regulated by the SEC or any banking organization. So, you can call yourself whatever you want. I know a lender here in town who refers to her loans as "squishy money". When asked, I will continue to state that "private money" is someone you know personally who's lending you their own money. And that any company that's advertising they have money available for loan is a hard money lender, regardless of what they call themselves.
Editor’s Note: This interesting forum conversation talked about the sometimes blurred lines between hard money lenders and private money lenders, some seem to think if an investor advertises that he is lending he is no longer a private lender.
We totally disagree with this notion, private lending is lending from your own personal capital, period. If you are not a licensed lender or broker, and are lending from your own funds, it's our stance that you are clearly a private lender. You can advertise, you can lend to someone you just met or have never met as long as the numbers line up and your happy with the property that is backing the loan. The forum debate was definitely interesting though. Here are some other interesting points of view from the thread:
- The typical borrower might initially be more leery of a hard money lender than a private money lender, but having a well established operation and sterling reputation will swing the pendulum the other way.
- At this point, everyone seems to call themselves whatever they want, the trend is toward the nicer sounding term of "Private Lender."
- Neither of these terms have legal merit, "private money lender" is a term interchangably used with "hard money lender" by real estate types.