Learn something new every day
More Info... by email
Some individuals cannot borrow money from banks or credit unions and would pay a high interest to get a loan. Other individuals possess money and want to get some profits from it. A lending investor finds people with money and matches them with people who need money and are willing to pay a certain rate of interest for it. Unlike banks or credit unions, these investors perform only one specific task: they lend money for profit. These investors also operate on a smaller scale, having a smaller capital base and operating within a particular limited area.
Some individuals can't get financing from conventional financial institutions when they need money for items such as real estate property, business inventory, and vehicles. Often, this is because they have credit scores that are too low for them to get conventional loan approvals. Lending investors usually have more lenient requirements when it comes to credit scores, allowing these individuals to access loans, albeit at higher interest rates. They also often personally know their clients because of their small territory, so they can use details such as the client's personality and circumstances to assess the risk of the loan. They also often offer faster processing so clients can get the money quicker.
A corporate lending investor does not take money deposits like banks do, so it actively looks for individuals with excess capital to invest. The investor usually requires that individual investors put in a certain minimum amount of money. Depending on the company, investors might be able to obtain details about what the clients will use the money for and use the information to decide whether to go through with the investment.
As a safety measure for the individual investors, the lending investor sometimes promises a certain rate of return and secures the loan against the borrower's asset. A secured loan means the investor can take over the borrower's asset if he or she fails to make loan repayments. For example, if the borrower wants to use the money to buy a property, the investor can secure the loan against that property. If the borrower can't repay the loan, the investor obtains the property so it can sell it and recover the money.
A lending investor gets profits from the fees and commissions it charges, including application fees, collection fees, insurance, and notarial fees. He often has small expenditures because of his limited area of coverage. Due to the small number of borrowers and investors, a lending investor can often afford to have a small office with basic office equipment operated by a handful of staff members.