Who Are Private Lenders?
Private Lenders are those people who lend money to anyone in a social circle.
The principle is similar to that of peer-to-peer lending but in this, you are the one who has to manage everything and also keep 100% of the profit earned through interest on the money invested.
Who Is Private Lending For?
This type of lending works best for those people who don’t have much knowledge about the nuances of business, people who do not want to individually run a business, people who don’t mind taking risk of losing money.
If you have some amount of money, have lots of free time to spare and don’t mind dealing with all types of people, then this might work for you.
Remember, you need to have enough time daily to persistently run after those people to whom you gave your money and also know how to make them pay you back without delay. Or you can employ someone else who is good at this to do it for you.
Here Is How You Can Make Money Fast As A Private Lender
Everybody needs money. You would be surprised to see that many people would want to borrow money with interest from private lenders instead of asking or begging from someone they knew.
Here is how your business starts!
As you are the sole dealer, the interest rate is set according to your choice. Some lenders even take as high as 10% interest per month for the money they lend. This works mainly with business owners. The average range of interest most people take is between 2% – 6% per month.
Another way of earning high interest is lending a small amount of money like $50 – $500 to multiple small business owners, sellers (daily wagers) and collecting the interest on a daily basis for some period of time for which you agreed upon – like a month or two or until the principal amount is returned back to you.
Giving out a dollar or two ain’t that difficult for anyone, so it seems easier to pay.
It is one of the easiest ways to earn money. It will not make you rich overnight, but with time you can accumulate a good amount of money. My sister-in-law did it and it’s quite profitable.
For Example, You distributed $70 to 10 people and collect $2 each day for a month or until they pay the principal amount of $70. At the end of 30 days, you will be in a profit of $600 – that is the interest-only – almost double your invested money.
How To Get Started As A Private Lender
1. Find someone you can trust or someone trust-worthy referred to your family or friends.
2. Make sure the person has a constant source of income – must be employed or have at least one main source of income like running a store or any business that brings in some amount of money each month.
3. If the person is not employed at present, look for any assets like automobiles, home, etc. for your security in case, he couldn’t repay you back.
It’s up to you if you ask for a copy of the documents. But, some people might not want to give you and would rather not take any money from you.
4. You can make a bond or agreement which depends on your trust ratio with the person to whom you are lending, with the amount given and the time when it will be returned back to you.
Mostly, cheque with borrower’s signed and some documents like copy of IDs for address proof are kept as security for higher amounts.
5. Always give a smaller amount if you are collecting the interest on a daily basis so that you will not lose a large amount of money in case your borrower refuses to pay or absconded (run away). If it’s someone you’ve known well and can be trusted, you can give a higher amount, it’s entirely up to you.
6. Keep constant and updated track of the money – how much you give, how much you received back with the date, and update with your borrower regularly to avoid confusion.
7. Many people take an extra interest if the borrower fails to return the interest money on the set specific date each month.
Someone borrowed money from you at an interest rate of 3% per month and a specific date of every 10th of each month was set for paying you the interest or principal amount.
If that person wasn’t able to give you on that date, you can increase the interest amount to 5% or double. Many business lenders do this.
This will also remind the person that he has to repay your money on time and you are really serious about it.
However, it’s up to you to charge extra given the condition the borrower goes through like in case of hospitalization, accidents, etc. You can give extended time without extra fees if you find that the person has undergone a really unavoidable situation where he couldn’t return your money back on time.
It’s not good at all to see from your own perspective and profits alone when asking for your money back because anyone can face unavoidable situations which weren’t expected!
So, I would recommend that you do consider those kinds of situations and give your borrower ample time to settle a little bit! This way, your rapport with that person will be maintained and he will be more thankful to you. You will also feel more satisfied.
As the risk of default is great, it is best to physically visit the person at their home address to authenticate and verify the documents submitted in case you haven’t known that person personally.
I have seen some cases with mutual lending without any agreement or bond, where the borrower denied to repay back and insist there is no proof to show that he/she borrowed the money from the lender. And, legally there is no proof to show the claims.
Ultimately, the lender resorted to any means he could employ to get back the money at the same time cannot harass the borrower as there is no proof legally. It’s a painstaking process. In this scenario, the lender can lose all the money!
Advantages Of Private Lending
- Since you are not giving any fee to anyone, you keep all the profits you make.
- If your interest is high, within a couple of months you will have double or more of what you invested initially.
- Potential borrowers who have small business ideas with no bank account balance and have no one to help them financially are willing to borrow a small amount of money for their start-ups.
Disadvantages Of Private Lending
- It is risky as the borrower can default.
- If you happen to deal with someone who is reluctant to pay you back, you face the risk of losing your money.
- It consumes time and energy as the borrower might ask you to collect it at some other time of the day other than the routine time you gave.
- If the borrower does not have a specific place or location for running his business like an Ice-cream Vendor or any vendor who doesn’t have a fixed place, you have to trace where they are.
- You might lose your money if the borrower denied taking money from you in the absence of any written proof of lending.
- You will lose your money in case the borrower absconded (in rare cases).
Conclusion On Starting A Private Lending Business
Private Lending is not the best way to earn money with the risk involved, but sure is one of the quickest ways to multiply your capital in a short span of time.
With the demand and need for money, I can definitely assure you that many people will flock to you and request you for money on interest.
In case, you want to try this method, I would recommend you to always make a signed agreement or bond along with the sign of a witness to prove that you lend your money to that person.
The agreement need not be on legal paper though. It can be a plain A4 size paper or you can even use a note pad register since the purpose is to protect yourself in case the borrower denied that you lend your money. With a signed agreement, you always have the proof to furnish if the situation demands. You never know what will happen!
Be clear on when and how long the money will be returned back to you.
If you are considerable and helpful, you need not search for any borrower, your own customer will bring other people to you regularly.
The key here is to be kind and generous to your borrowers but also to make sure that you are not taken advantage of for it!
If you have the capital but want to go for something which is not risky, then learn some skill.
A skill that will help you make passive income for years to come.
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MLian’s passion for writing is to help you understand that ‘All That Glitters Is Not Gold’. Her mission is to show you Practical and Actionable Ways To Earn Money online and offline to save your time and money – that you won’t get “SCAMMED” into buying something that promises Big but really doesn’t profit anyone except the owners.