Private equity loans appear as a “financial bailout” solution when bank options have run out.
If at some point in your life you have encountered the need to get urgent money and your trust bank has rejected you, you will surely look for urgent credits .
The search for alternatives to solve this situation possibly leads to having to contact financial and private money lenders .
If someone offers you Private Capital as a solution to your problems, you should know the characteristics of this type of loans, since intermediaries usually do not usually offer them with necessary clarity.
In this article I will explain in detail the pros and cons of this way of financing.
Credits Private Capital as an URGENT solution
Private Capital or Venture Capital, is an investment made by professional investors , whose expectation in their return on investment (ROI) will be extended in the medium / long term.
These investments are made in securities with great growth potential (usually companies), which go to private equity or risk loans as an alternative method of financing.
Investors are involved in the operations carried out, and in some cases they work together with the administrations of the companies, actively participating together with the company’s board of directors.
The objective of Private Capital is to increase the value of the asset in which it is invested, in the future to make an exit (exit of the investment) and recover the borrowed capital plus the percentage of its profit.
What I just told you is the theory of what is called Venture Capital or Private Capital for companies or business projects of future growth.
Where are the individuals and SMEs that do not present this profile of this type of projects?
Do they have access to private capital?
The answer is: YES.
Private capital investors represented by companies that cover the needs that banks cannot allow can be accessed.
Private Equity loans have a bad reputation. Phrases such as “lending private money”, “urgent private loans”, “only with guarantees or guarantees” cause rejection and are replaced by phrases with another connotation: “Private Capital loans for entrepreneurs”, “Private Capital loans between individuals”, “Credit between individuals”.
From the point of view of a private individual, a self-employed person or a small business owner, Private Equity loans have suffered a mutation in order to adapt to their needs.
In the end everything is summed up in the same way: private lenders make investments in companies or individuals in the form of private equity loans, agreeing between the parties an interest and a term for their return.
Private Equity Loans without Mortgage Guarantee
When a private individual contacts with financial or lenders it is very common that the second ask what they do to you is the following: Do you have a real estate guarantee?
When we get out of the bank and opt for private credit, in most cases we will only get an urgent private loan if you have a property.
When we do not have a mortgage guarantee as a general rule they refused the credit.
Private Equity Loans with payroll only
There are financiers who are specialists in offering private capital loans only with payroll.
The only requirement that is required to get private capital loans only payroll is that they are not in Financial Standing. In the case that you are in the Financial Standing for some incident, getting loans only with payroll will be much more complicated.
It will be on these occasions when you are in Financial Standing where the private payroll-only loans will not be enough. Private money financiers take advantage of this situation to demand a guarantee.
The guarantees they can accept are usually homes and in some cases a car as a guarantee.
Private Equity Loans for companies
Companies and freelancers can also access private business loans and solve their liquidity problems.
When a company tries to access a private credit, it is usually because its banking situation is blocked. The private money of the lenders becomes a solution for your liquidity problems.
There are financial companies that offer lines of credit through crowdfunding platforms and that only work with companies.
In the event that the company has to access private capital loans, it is usually customary for the private money lender investor to request a mortgage guarantee to guarantee the operation.
Private equity credits for a “simple individual”
Unfortunately when we need urgent money and the bank denies us financing , the few solutions that we have left may be: a with a jackpot.
Gone are friends and family we already have exhausted with our economic debts .
But as we have commented at the beginning of this article, in the search for solutions to our liquidity problems, we have determined that our elixir to our problems will be Private Capital credits .
As you have read previously, I have explained to you what Private Capital means at the business level, but in relation to your particular problem you will surely not find the explanation of how Private Capital loans can help you .
You personally are not a company with growth capacity, you are not an asset on which to make a capital injection that generates a possible benefit: you are a “private individual” with urgent credit needs .
If your answer is no and the amount of money you need over 3,000 €, the only private equity loans can help you be those that target real estate investment (Real Estate Investment).
A real estate guarantee insures the investment and, if it suffers a default, the property that acts as collateral can cover the debt.
The risk in private equity mortgage loans
I will not deny you: urgent loans offered by lenders in which a mortgage AVAL is provided carry the risk of losing your home in case of default .
The non-payment of any credit or loan contracted will fall on your present and future assets, in this case the responsibility will fall on the one associated with the guarantee or guarantee .
Private equity loans with real estate collateral that suffer defaults execute the collection of their debt with the embargo and auction of the guaranteed guarantee .
It is very important that you know that when private capital loans are contracted in the event of default your guarantee is in danger.
But let’s not be negative.
Do we buy a house with the thought of not paying our mortgage?
Well, this case is the same.
Do we ask for a loan with the thought of not repaying it?
Imagine the case that we have taken the “risky” decision to get a loan offering our property as collateral.
We have to have an OCD (Objective, Conditions, Return) plan defined previously. Before requesting this type of financing you should ask yourself the following questions:
- The objective of the loan.
- The financing conditions .
- The return form .
A good approach will be the future welfare of our economy.
The OCD plan (Objective, Conditions, Return)
We detail each part of the OCD plan below:
The objective of requesting private equity loans
I want to make it clear to you from the beginning so that you don’t get deceived later:
The objective of applying for Private Equity loans with mortgage guarantees must be serious and responsible , that is, for a logical cause and one of real need.
Forget about asking for Private Equity loans to make a trip to the Caribbean, buy clothes, cars and others. For this are the financial and microcredits .
A real situation due to lack of liquidity is the real reason for contracting private capital loans. Therefore, be clear about your objective when contracting this type of loan with private capital.
The financing conditions
One of the most important parts when negotiating private credits will be the financing conditions.
The good knowledge of the private money borrowed , its interest, and the repayment period is essential to avoid unpleasant surprises.
The borrowed private money indicates the gross total of the money that the lenders offer in the Private Equity credits.
From this capital it will be necessary to deduct the items that are destined to management expenses and commissions such as; opening commission, study or management commission, registration, notary, taxes, etc.
Private Capital loans have a high management cost , and in some cases they can exceed 20% of the borrowed capital.
Interest indicates the total percentage to be paid for the money borrowed. This interest may be paid in monthly, quarterly or annual installments, depending on the conditions established in the loan contract.
The return period stipulates the time we have to return the money. The terms for this type of loans are usually set in one, two and five years.
You have to be very clear about the conditions demanding a binding offer or a written budget days before signing the Private Equity loans .
I am going to tell you what 90% of the applicants of a Private Capital loan do after carrying out the process before a notary: go to lunch to celebrate it.
You have obtained a loan of € 20,000 of which you have left approximately € 15,000 free, and must return € 22,400 next year.
Has the Private Equity loan helped you?
Maybe yes, but honestly there is nothing to celebrate, but, rather the opposite, you have to think about how we are going to repay the loan.
What solution do you have to repay the loan? Are you going to sell your property? Do you receive money by other means? Are you going to refinance your debt in the short term?
A good repayment plan when applying for a Private Capital loan is essential to not get an unpleasant surprise when the term requires us to return the money.
How much credit can I get with Private Capital?
Have you never heard the saying “you have so much vouchers” ?
Well, with private equity loans it becomes even more latent.
There is an established norm in the business of private capital: the norm of 30% of the VTM (Market Valuation Value).
When you apply for private loans they have a limit: your real estate guarantee. This guarantee or guarantees will determine the maximum amount that you can request.
Investors and companies engaged in the business of private capital loans usually grant a maximum of up to 30% of the value of the appraisal of your real estate guarantee under normal conditions.
In the real estate investment business, normal conditions are based on the fact that the fluctuation of the value of the property is not downwards . Remember that we are talking about investments and as such we must bear in mind the future value of the asset.
What does this mean?
This is a clear reflection of how real estate investors can think. The value and location of the property is essential for a lender to decide to move your money.
How a real estate appraisal is valued to obtain the Private Equity Loans
To get a private equity loan with our property as collateral, we will have to value our property in order to have a reference of its value in the mortgage market.
As you already know, the urgent private loans granted by lenders or financiers are usually signed before a Notary and usually have the character of a mortgage loan.
Years ago it was the lender who valued your property, but currently the Mortgage Law requires an appraisal made by an appraisal company approved by the Bank of Spain .
ATTENTION: do not look for “how to price my house” on Google, since you might find companies that estimate a valuation for € 50 and it will be money thrown away.
The normal cost of a real estate appraisal is € 350 plus VAT. This amount may be higher if the property is a villa, house, premises, etc. We are talking about a basic appraisal of a home.
Appraisal is an expense that urgent private loan applicants have to pay, a provision should never be made to appraise a property if you do not have a serious urgent credit offer.
There are intermediaries who, given the impossibility of being able to make a private capital loan, require an amount from the applicant as an appraisal, normally this amount is left by the intermediary without any management.
For this reason you should never advance anything without being clear that the operation has a viability.
3 essential tips when requesting Private Capital
I am not given to give advice, rather to receive them, but here 3 tips when asking for private capital that will be very useful:
- The first advice I can give you is that if possible they teach you before arriving at the notary the minutes of the loan you are going to sign. This is very important since there are many cases in which the intermediary or the investor offers some numbers and in the end they are others.
- Do not sign mortgages with bills of exchange : they are a real danger and you never know where these letters will fall.
- Keep in mind that the place of payment is reflected in the minutes , and if possible it is a bank account and that it is confirmed by the investor. It may happen that at the time of payment you do not find the lender and the thing becomes complicated.
Always remember to make it very clear before signing the loan expenses and commissions derived.