Private Money: A Guide to Alternative Lending Solutions

What is Private Money?

Private money refers to loans provided by private individuals or companies, rather than traditional financial institutions like banks or credit unions.

These lenders are often high-net-worth individuals, private equity firms, or specialized companies looking to invest in profitable lending opportunities.

Unlike traditional lenders, private money lenders typically focus on the value of the asset being financed, such as real estate, rather than the borrower’s credit score or financial history.

This approach makes private money an attractive option for those who may not meet conventional lending requirements.

5 Key Characteristics and Main Benefits of Private Money Loans

Private money loans offer a range of distinct advantages and features that set them apart from traditional financing. These characteristics make them particularly appealing to borrowers who need fast funding, flexible terms, or have unique financial situations.

From rapid approvals to customized loan structures, private money loans cater to those seeking efficient and accessible funding solutions.

Let’s explore the key traits that define private money lending and why they matter to borrowers.

1.       Fast Approval

Private money lenders can process and approve loans in as fast as 7 days. This speed is particularly beneficial for borrowers facing tight deadlines or competitive real estate markets.

2.       Asset-Based Lending

This alternative lending solution focuses on the value of the collateral, such as a property or asset. This makes it easier for borrowers with poor credit or non-traditional income to secure funding.

3.       Short-Term Nature

In addition, private money loans typically have shorter repayment periods, ranging from 6 months to 3 years. These terms are designed for borrowers seeking quick financial solutions, such as bridge loans or funding for real estate projects.

4.       Flexible Loan Terms

Private money lenders often customize loan structures to meet the unique needs of the borrower. This flexibility allows for creative solutions, such as interest-only payments or tailored repayment schedules.

5.       Easier Qualification Process

The application process for private money loans is less rigorous compared to traditional loans. Borrowers benefit from reduced documentation requirements, which speeds up approvals and lowers the barrier for obtaining funding.

These characteristics make private money loans a unique and viable option for borrowers with specific financial needs, especially those looking for flexibility and speed in their lending solutions.

Private Money: Risks and Considerations

While private money loans offer numerous advantages, they also come with certain risks and considerations that borrowers should carefully evaluate before proceeding.

Understanding these potential downsides is essential for making informed financial decisions. Below are some of the key risks associated with private money lending.

Higher Interest Rates

One significant drawback of private money loans is their higher interest rates compared to traditional bank loans.

Since private money lenders take on greater risk by providing funding based on collateral rather than creditworthiness, they typically charge higher rates to compensate for that risk. Borrowers should carefully assess whether the potential returns from their project justify these higher costs.

Risk of Losing Collateral

Private money loans are typically secured by collateral, such as real estate. While this offers the lender assurance, it means that if the borrower fails to meet repayment obligations, they risk losing the asset.

This is a significant consideration, particularly for borrowers who are investing in properties or projects with uncertain outcomes.

Limited Availability of Lenders

Finding the right private money lender can be challenging, especially for borrowers who are new to this type of financing.

Private money lenders are not always easy to find unlike traditional banks – and their terms can vary widely. It may take time to find a reliable lender that offers the right loan structure for your needs.

Fortunately, we at SDC Capital simplify this process by providing straightforward, transparent, and reliable private money lending solutions.

As a leading provider of bridge loans and other alternative financing options, SDC Capital offers tailored lending solutions to meet the unique needs of real estate investors and borrowers.

Our experience, commitment to customer service, and competitive loan terms make us a reliable partner in navigating the world of private money lending.

Whether you're looking for fast funding for a fix-and-flip project or a bridge loan to seize a timely investment opportunity, SDC Capital can offer the solution you're looking for.

Why Private Money Might be Right for You

Private money loans are not the right fit for every borrower, but they offer significant advantages for certain situations. If you find yourself in any of the following scenarios, private money might be the ideal solution for your financial needs.

1.      You Are Investing in Real Estate

Private money loans are often the go-to financing solution for real estate investors, especially those engaging in fix and flip projects, property renovations, or other short-term ventures.

These loans allow for quick access to capital, enabling investors to act fast in competitive markets.

2.      You Need to Bridge Financing Gaps

Private money loans are often used for "bridge financing," providing temporary funding until long-term financing can be arranged.

If you need to bridge the gap between the sale of one property and the purchase of another, or if you’re waiting for more favorable financing terms, a private money loan can give you the cash flow needed in the interim.

3.      You Need Fast Funding for Time-Sensitive Opportunities

Private money loans are known for their speed. Unlike traditional loans, which can take weeks or even months to process, private money lenders can approve and fund loans in as fast as 7 days.

This makes them ideal for real estate investors or borrowers facing urgent financial opportunities, such as purchasing a distressed property before a competitor does or covering an immediate cash flow gap in a business.

If any of these situations apply to you, private money lending can provide fast, flexible, and reliable funding solutions for you.

It’s essential to understand your specific needs and goals to determine if private money is the right option, and consulting with an expert can help guide you in making the best choice.

Speaking of private money experts, let SDC Capital help you in your real estate investing journey. Contact us today.

SDC Capital Funds $900,000 Owner-Occupied Bridge Loan in Huntington Beach, CA

SFR property in Huntington Beach, CA

DEAL HIGHLIGHTS

• Loan Amount : $900,000

• LTV: 60%

• Loan Type: Consumer Owner-Occupied Bridge Loan

• Property Type: SFR

• Location: Huntington Beach, CA

ABOUT THIS DEAL

SDC Capital recently funded a $900,000 consumer owner-occupied bridge loan for a single-family residence (SFR) in Huntington Beach, CA. With a loan-to-value (LTV) of 60%, this transaction provided the borrower with the short-term financing needed to bridge the gap between properties.

Thankfully, SDC Capital’s expertise in structuring bridge loans allowed the client to move forward with their plans confidently, securing flexibility during a critical transition period.

ABOUT SDC CAPITAL

SDC Capital brings over 35 years of expertise in bridge lending and real estate development. We understand the challenges that real estate investors face and provide the flexibility to structure loans tailored to their specific needs.

With a proven track record of success and strong financial backing, we are a dependable partner committed to delivering results.

SDC Capital Funds $1.1M Cash-Out Refinance in Los Angeles, CA

An SFR rental property in Los Angeles, CA

DEAL HIGHLIGHTS

• Loan Amount : $1,100,000

• LTV: 50%

• Loan Type: Cash-out business purpose refinance

• Property Type: SFR Rental Property

• Location: Los Angeles, CA

ABOUT THIS DEAL

SDC Capital recently funded a $1,100,000 cash-out business purpose refinance for a single-family rental (SFR) property in Los Angeles, CA. With a conservative loan-to-value (LTV) of 50%, this transaction provided the borrower with liquidity while retaining significant equity in the property.

ABOUT SDC CAPITAL

SDC Capital brings over 35 years of expertise in bridge lending and real estate development. We understand the challenges that real estate investors face and provide the flexibility to structure loans tailored to their specific needs.

With a proven track record of success and strong financial backing, we are a dependable partner committed to delivering results.

SDC Capital Funds 1.34M Purchase Loan Property in Santa Ana, CA

8-Unit multi-family property in Santa Ana, CA

DEAL HIGHLIGHTS

• Loan Amount : $1,348,750

• LTV: 75%

• Loan Type: 1031 Purchase Loan

• Property Type: 8-Unit Multi-family property

• Location: Santa Ana, CA

ABOUT THIS DEAL

SDC Capital recently funded a $1,348,750 loan to facilitate the 1031 exchange purchase of an 8-unit multi-family property in Santa Ana, CA with a loan-to-value (LTV) of 75%. This financing solution demonstrates our expertise in supporting investors navigating time-sensitive 1031 exchange transactions.

ABOUT SDC CAPITAL

SDC Capital brings over 35 years of expertise in bridge lending and real estate development. We understand the challenges that real estate investors face and provide the flexibility to structure loans tailored to their specific needs.

With a proven track record of success and strong financial backing, we are a dependable partner committed to delivering results.

SDC Capital Funds $350,000 2nd Lien Cash-Out Refinance in Oceanside, CA

Industrial condo in Oceanside, CA

DEAL HIGHLIGHTS

• Loan Amount : $350,000

• LTV: 56%

• Loan Type: 2nd lien cash-out business purpose refinance

• Property Type: Industrial condo

• Location: Oceanside, CA

ABOUT THIS DEAL

SDC Capital recently funded a $350,000 second lien cash-out business purpose refinance for an industrial condo in Oceanside, CA. With a loan-to-value (LTV) of 56%, this transaction highlights our ability to provide strategic financing solutions for business owners leveraging their real estate assets.

By structuring a second lien loan, we enabled our client to access capital while retaining flexibility for their operational needs.

ABOUT SDC CAPITAL

SDC Capital brings over 35 years of expertise in bridge lending and real estate development. We understand the challenges that real estate investors face and provide the flexibility to structure loans tailored to their specific needs.

With a proven track record of success and strong financial backing, we are a dependable partner committed to delivering results.

Impact of Federal and California Tenant Eviction Moratoria

The ongoing COVID-19 pandemic has affected all aspects of the US economy, including the rental market. As a result, tenant protections (which vary in form, function, length, and eligibility requirements) have been implemented by the federal, state, and local governments. These protections (including without limitation an eviction moratorium) apply broadly to residential tenants, whereas no federal or state protections apply to commercial tenants (who are therefore subject to localized community protection).

National Tenant Protections – US Centers for Disease Control Eviction Moratorium

The US government, through the Centers for Disease Control (CDC), has issued an order (Agency Order) prohibiting residential evictions for covered persons who (1) are unable to pay rent and (2) meet eligibility requirements. It has been extended several times and is currently set to expire June 30, 2021. Qualification does not require a person’s financial hardship be directly COVID-19 related. The Agency Order protections have been mirrored by the USDA, HUD, VA, and FHFA. The CDC has issued non-binding guidance  in connection with the Agency Order (of note, this guidance has not been updated to include the most recent extension). It should be noted that the Agency Order does not require a landlord to forgive or forbear rent, it merely creates a moratorium on evicting covered persons. There are currently no active federal rent forbearance or forgiveness programs, however, the recently enacted American Rescue Plan Act  seeks to provide $100 million in rental assistance programs. The Agency Order  protections only apply if they are greater than those offered by the applicable state or local government.

California COVID-19 State and Local Tenant Protections

California has implemented residential tenant protections through a progressive series of actions, which are generally more expansive than the Agency Order. Of note, unlike the Agency Order, the California residential protections do restrict eligibility to persons with COVID-19 related hardship and require the tenant meet financial eligibility requirements. In 2020, Governor Newsom issued a series of Executive Orders protecting residential tenants. These were followed by the enactment of the Tenant, Homeowner, and Small Landlord Relief and Stabilization Act of 2020 (Tenant Stabilization Act). The Tenant Stabilization Act prohibits a tenant’s non-payment of rent eviction due to COVID-19 related hardships experienced between March 4 and August 31, 2020 so long as the tenant delivered a hardship declaration. Tenants who experienced such hardships between September 1, 2020 and January 31, 2021 are required to pay 25% of the rent owed by June 30, 2021 to retain such protection. The Tenant Stabilization Act imposed additional landlord obligations, including revised notice requirements and an extended 15-day notice to quit, rather than the standard 3-day notice. The Tenant Stabilization Act also expanded the small claims court jurisdiction to cover unpaid rent claims, regardless of the amount owed.

In January 2021, the heavily pro-tenant Senate Bill 89 (Budget Act of 2020) (SB 89) and Senate Bill 91 (SB 91) were passed (collectively, the 2021 Protections). The 2021 Protections generally prohibit unlawful detainer actions prior to July 1, 2021; expand the previous protections; and add new protections, obligations, and time constraints. See Cal. Civ. Proc. Code § 1179.03.5.  Generally, SB 91 revises the Tenant Stabilization Act protections in the following ways:

• Extends the prohibition on a landlord interrupting or terminating a tenant’s utility service with the intent of terminating the tenant’s occupancy

• Extends until July 1, 2021 the time in which a tenant may avoid eviction by paying 25% of rent arrearages

• Prohibits the use of COVID-19 rental debt as a negative application factor or as the basis for refusal to rent a dwelling unit to an otherwise qualified person (of note, this provision does not include a termination date, and therefore, arguably, such COVID-19 related debt may never be used as a negative factor)

• Prohibits a person from selling or assigning specified unpaid COVID-19 rental debt until July 1, 2021 (this prohibition is permanent with respect to unpaid COVID-19 rental debt owed by qualifying tenants)

• Prohibits COVID-19 rent default retaliatory unlawful detainer actions

• Prohibits late payment fees or additional/increased fees for services previously provided at no charge where the tenant has COVID-19 rental debt and has submitted a hardship declaration

• Permits temporary reduction or cessation of a service or amenity as the result of compliance with federal, state, or local public health orders or guidelines

SB 91 included the following protections, obligations, and time constraints:

• Extends (until July 1, 2025) the small claims court jurisdiction over COVID-19 rental debt recovery and prohibits the commencement of an action until August 1, 2021.

• Imposes (until July 1, 2027) additional landlord documentation requirements for the recovery of COVID-19 rental debt.

• Prohibits recovery (until July 1, 2025) of excess attorneys’ fees in COVID-19 rental debt matters

• Extends the covered “COVID-19 rental debt” period to the period between March 1, 2020 and June 30, 2021, and further extends the repeal date until July 1, 2025.

• Prohibits application of a security deposit to satisfy COVID-19 rental debt for any tenancy existing between March 1, 2020, and June 30, 2021 (absent the tenant’s written consent).

• Modifies the requirement that a tenant “deliver” the COVID-19 hardship declaration, to require only that the tenant “provide” same.

• Modifies required statutory landlord notice provisions.

The most expansive component of the 2021 Protections, however, are the provision of rental assistance to tenants. The 2021 Protections permit a landlord to elect payment of a rental subsidy equal to 80% of the total rent arrearages incurred between April 2020 and March 2021, in exchange for an agreement to (1) forgive the remaining 20% rent arrearage and (2) not pursue an eviction or other monetary judgment. Failure to make such election will result in the tenant’s eligibility to receive 25% rent arrearage as a subsidy. It is unclear if courts will permit landlords who refuse to participate to obtain a judgement for the full amount of the rent arrearage.

California commercial tenant protections are authorized by Executive Order N-03-21  and Executive Order -80-20, which provide authority to local jurisdictions to suspend COVID-19 related commercial evictions until June 30, 2021. This authority has been implemented by various local municipalities. Some California counties (such as Contra Costa and San Francisco) and cities (such as San Francisco and Oakland) have extended additional residential and commercial protections. For example, Contra Costa has utilized this authority to extend the eviction moratorium on qualifying small businesses until June 30, 2021 and has further expanded the residential eviction moratorium to prohibit evictions based upon (1) no cause, or (2) a tenant allowing an unauthorized occupant to live in the dwelling unit, if the occupant is a member of the tenant's immediate family living in the dwelling unit as a result of the COVID-19 pandemic. See Ordinance No. 2021-11.  San Francisco adopted an ordinance protecting “covered commercial tenants” from eviction, for rent defaults from March 16, 2020 through June 30, 2021 which resulted from COVID-19 related impacts. The San Francisco ordinance  imposes a commercial eviction moratorium, prohibits the assessment of interest or other charges based on unpaid rents that were due during the moratorium period, and provides smaller covered commercial tenants a forbearance period after the moratorium ends to repay the missed rent. The San Francisco residential ordinance imposes an eviction moratorium and permits tenants six months to pay missed rent, as well as  tenant notice and documentation requirements. The City of Oakland’s commercial eviction moratorium prohibits eviction of small businesses for failure to pay rent if such failure is due to a documented substantial income decrease caused by the COVID-19 pandemic or by any governmental COVID-19 response. It will expire upon the termination of  EO N-80-20 (currently set to expire on June 30, 2021).

Can Any Tenant be Evicted?

It should be noted that neither federal or state protections prohibit a landlord from evicting tenants who otherwise violate the rental agreement terms, it merely creates a moratorium on evicting protected persons. The right of a landlord to commence an eviction suit is also subject to variance between state and federal law. As a result of nationwide court closures due to COVID-19, few cases have been adjudicated, and therefore, it is undetermined if the CDC had the proper authority to issue this order. Several federal courts have determined that the Agency Order is unconstitutional but stopped short of imposing an injunction (which would effectively permit landlords to continue eviction proceedings). Additionally, there is currently no binding case law which determines whether the federal, state, or local residential protections offer tenants more benefit, and therefore it remains unclear which protections apply, in particular where California ties the protection to additional documentation or COVID-19 relationship requirements. California commercial tenants must avail themselves of the localized protections. Additionally, it is unknown if this patchwork system of federal, state, and local protections will continue to be extended or otherwise modified or amended. Therefore, we will continue to monitor this evolving situation and provide updates.

The expansive federal, state, and local tenant protections instituted as a result of COVID-19 inhibit a landlord’s ability to collect rents owed, remove defaulting tenants, and increase rental income through value-add renovation programs. SDC Capital can help close this gap. We specialize in providing short-term bridge loans (up to 24 months) with flexible terms to help meet the evolving needs of our borrowers, as they navigate through these uncertain times. 

Kevin Arrabaca
Principal
P: (818) 835-8936
E: kevin@sdccap.com

SDC Capital funds $720,000 Cash-out Bridge Loan On Multi-Tenant Retail Property with No Appraisal

•  $720,000 cash-out loan secured by a quaint multi-tenant retail property in Lafayette, CA

• Cash-out proceeds used to complete the renovation of the property

• 65% of "As-is" LTV

• 8.99% interest rate

• 12 month term

SDC Capital funded a cash-out refinance of a family-owned multi-tenant retail center in Lafayette, CA. The owners needed the funds to complete renovations of the property that were long overdue. The broker who brought us this deal initially requested a cash-out loan secured in 2nd position, but that plan changed once it was determined that subordinate financing required approval from the 1st lien lender – approval the lender was unwilling to give after nearly one month of deliberation. Now short on time and shorter on funds to pay their contractor, the borrowers approached us regarding the refinance of their 1st lien loan. To avoid any further delays by requiring the borrower to get an indemnity package approved by the title company to obtain mechanics lien coverage on the lender’s title policy, SDC Capital mitigated the loss of priority risk through our due diligence and we closed the loan quickly without an appraisal.  The broker was happy as his clients’ financing need was solved and he received a higher commission as the loan amount increased from the original request.

SDC Capital funds $1,375,000 Multi-Family Bridge Loan at 5.99% With No Appraisal

• $1,375,000 loan secured by a 6 unit- multi-family property in San Francisco

• 55% LTV

• 12 month term

• 5.99% interest rate

• 1.25 lender points

• No appraisal required

SDC Capital funded a cash-out loan on a 6-unit multi-family property in San Francisco.  The borrower came to us requesting a quick close with conventional terms to complete the renovation of his daughter’s commercial property. It was a lot to ask but given the low LTV of 55%, which we determined without an appraisal, we were able to arrive at our lowest interest rate to date. SDC Capital provided the borrower with the best of both worlds: a quick closing and very attractive terms. We completed our due diligence and delivered loan documents to escrow within 10 days of receiving a signed term sheet. Unlike most bridge lenders, SDC Capital has the experience and ability to not only fund a broad range of deals from commercial bridge loans to residential construction loans, we also have the capital base that allows us to price deals appropriately based on the risk of the deal.

SDC Capital Funds $300,000 2nd Trust Deed Residential Loan

• $300,000 2nd lien loan secured by a triplex near Century City

• 12 month term

• 9.0% interest rate

• SDC Capital committed to this loan within 3 days of receiving the loan request and did not require an appraisal.

SDC Capital funded a cash-out 2nd lien loan on a triplex near Century City for a repeat borrower.  Our borrower attempted to obtain a conventional loan secured in 2nd position by his triplex but at the last minute, the bank denied him.   He came to us needing a quick closing due to the last minute denial and we were able to accommodate him by committing to the loan within 3 days without requiring an appraisal.  We work hard to provide great service to our borrowers as our goal is for all borrowers to become repeat borrowers.   

SDC Capital funds $2.5 MM Residential Construction Completion Loan

• $2,500,000 construction completion loan, 60% loan to completed value

• 9 month term

• 9.5% interest rate

• Title company provided lender with mechanics lien coverage due to lender’s construction experience

SDC Capital funded a cash-out, construction completion loan on a high-end single family residence in Aptos, CA. The borrower’s existing construction loan came due and the borrower needed additional funds to complete the project.  Given SDC Capital’s extensive construction experience and thorough due diligence, SDC was able to get the title company to issue a lender’s title policy with mechanic’s lien coverage.Without this coverage and SDC’s persistence, this deal would not have closed.

SDC Capital Funds 8% Cash-Out Loan On CA Industrial Property

• $1,336,500 cash-out refinance at 55% LTV

• 24 month term

• 8% interest rate for 1st year, 8.5% rate for 2nd year

SDC Capital funded a cash out loan on a single-tenant industrial building with warehouse and office space in need of updates in Orange County. The borrower, a long-time owner-user of the property, needed funds to improve a showroom space and make other updates. The loan included roughly $400,000 cash out to borrower to complete the work.

6.95% Land Acquisition Loan in Venice, CA

SDC Capital has funded a $4,500,000 loan (6.95% + 1 point) for the purchase of land (currently a parking lot) in Venice, CA.  Unlike many lenders, SDC Capital allowed the borrower to cross-collateralize the acquired property with a junior lien on another residential property.

SDC Funds Industrial Purchase in South Gate

SDC Capital has funded a $250,000 loan for the purchase of an industrial warehouse in South Gate, CA.  Our borrower was in search of a reliable funding source, given the quick closing timeline and the property's proposed alternative use.

Refinance and Rehab Loan in San Francisco

SDC Capital has funded a $1,420,000 loan (8.75% + 1.5 point) for the refinance and renovation of a residential condo in San Francisco, CA.  Unique to most lenders, SDC funded this loan mid-construction, after investing the time to work closely with our title officer to provide the appropriate coverage to mitigate our risk.  

SDC Funds 2nd-Lien Cash-out Business Purpose Loan in Los Altos, CA

SDC Capital has funded a $500,000 2nd-lien business purpose loan secured by a single family residence in Los Altos, CA.  After speaking with several lenders, our borrower selected SDC Capital based on our overall pricing structure and quick funding timeline. 

SDC Capital Funds a Purchase & Rehab Loan in Sacramento County

SDC Capital has funded a $191,250 loan for the purchase and renovation of a single family residence in Citrus Heights in Sacramento County, CA.  This loan was sourced from another lender relationship who was tight on funding and needed a reliable capital source to step in and quickly fund his deal. 

7.99% 8-unit Multifamily Purchase Loan in Long Beach

SDC Capital has funded a $910,000 loan (7.99% + 1 point) for the purchase of an 8-unit multifamily property in Long Beach, CA.   Our borrower intends to complete minor unit renovations and refinance our loan within a year with conventional financing.