The Ultimate Private Lending Glossary
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From market trends to government regulations, the private lending industry is constantly evolving — and so is the language that exists within it. This dynamic landscape can make industry jargon challenging for even the most seasoned of lenders, signifying the need for a resource that can grow alongside the industry. Our Private Lending Glossary is a comprehensive and evolving guide, intended to empower professionals with clear and relevant definitions. Written and regularly updated by our attorneys, the Private Lending Glossary reflects decades of legal and industry expertise. We invite you to utilize this glossary as a tool in your professional journey. To explore, to learn, and to return to whenever new developments arrive in the private lending space.
A
Adjustable-Rate Mortgage (ARM)
A type of home loan with an interest rate that varies or “adjusts” throughout the duration of the loan. The interest rate will typically be based on a financial index such as Wall Street Journal Prime or the 30 day Secured Overnight Financing Rate (SOFR).
The borrower felt that an adjustable-rate mortgage was the best option, due to the current condition of the market.
After Repaired Value (ARV)
The projected value of a property that is to be repaired, rehabilitated, or newly constructed after completion of the build and stabilized.
In the context of underwriting, it is a variation in calculating loan to value ratios using the following formula: Loan Amount divided by Projected After Repair Value of the subject property multiplied by 100.
Aggregator
An individual or business that is in the business of buying or acquiring loans from third-party lenders or originators.
Amortization Schedule
A schedule of payments of a loan that shows the borrower the amount, the date, and the balance remaining for each month.
In most fully amortized loans, there will be a gradual reduction of interest payments and a gradual increase in principal repayments over time.
Amortize
The gradual reduction of an amount through scheduled payments.
Amortized, amortizing
Annual Percentage Rate (APR)
The total yearly cost of a loan charged to a borrower, represented in the form of a percentage.
When looking for the best loan option, a borrower must consider the Annual Percentage Rate (APR) to ensure they have the available funds to finance the loan.
Appraisal
The estimated value of a property given by a licensed appraiser.
As Is Value
The value of a property as it stands at the time of valuation.
Resources relating to As Is Value
Denied but Determined: The Battle for Title Coverage Beyond Loan ValueA lender requires a Lender’s ALTA policy at 125% of the loan amount so a larger claim can be paid where indebtedness exceeds the insured sum — then title refuses to issue it at closing. Discusses the practical considerations and how to still complete the transaction.
Asset-Based Lending
A practice of lending that focuses primarily on the value of the collateral as opposed to the creditworthiness of the borrower.
*Asset-based Lending Is a broader type of lending that exists beyond Real Estate – it is often used in the context of Commercial Assets such as Receivables, Inventory, and other business assets that are not real property.
Assignment & Allonge
- Assignment: The transfer of property or rights.
- Allonge: A sheet of paper utilized to provide additional space or endorsements on a contract.
- Assignment & Allonge: refers to the assignment of the security instrument (Mortgage or Deed of Trust) and an allonge to the promissory note (essentially “Pay to the Order of New Lender). These two documents collectively assign a loan to another party.
Resources relating to Assignment & Allonge
3 Strategies to Free up Capital and Fund New LoansNon-conventional lenders faced two hurdles after the pandemic began. The first was falling originations, as restrictions and borrower reluctance stalled purchases and commercial deals slowed on fears that rents would not service a loan. Sets out three strategies for releasing capital to fund new lending.
Assignment of Rent (AOR)
A legal document in which a property owner transfers the right to collect rent payments to a third party, usually the lender.
Resources relating to Assignment of Rent (AOR)
Assignment of Rents – What, Why, and How?Almost all commercial loans now include an Assignment of Rents within the deed of trust or mortgage. It grants the lender a security interest in existing and future leases, rents, issues or profits from the secured property, including cash proceeds, should the borrower default. Explains why it matters and how it is enforced.
Assumption of Mortgage
A party not obligated on a loan agrees to voluntarily be obligated on the loan and complete the terms of the former borrowers’ loan agreement. This typically occurs after the property is transferred or sold and the mortgage is agreed to be assumed by the buyer/assignee of the property. Most commonly seen in inheritance situations.
The private lender agreed to the assumption of the mortgage by the borrower, enabling them to take over the existing loan while maintaining the same favorable terms established by the previous property owner.
B
Balance Sheet
A summary of financial balances that an individual or organization has at a specific point in time. A balance sheet will outline assets, liabilities and the value of the equity of the organization.
Resources relating to Balance Sheet
What is the difference between Table Funding, White Labeling, Wholesale, and Correspondent Lending?Private lenders often hear these four terms used interchangeably, and described inconsistently. Each describes something other than direct retail or balance sheet lending, where a lender uses its own capital. Explains what the terms actually mean and how each arrangement should be documented.
Balance Sheet Lender
Direct lenders that source funds from their own balance sheet.
Resources relating to Balance Sheet Lender
What is the difference between Table Funding, White Labeling, Wholesale, and Correspondent Lending?Private lenders often hear these four terms used interchangeably, and described inconsistently. Each describes something other than direct retail or balance sheet lending, where a lender uses its own capital. Explains what the terms actually mean and how each arrangement should be documented.
Balloon Payment
A large lump-sum payment of principal that is due at the end of loan term.
Resources relating to Balloon Payment
Innovation Meets Regulation – Why Fractional Loan Platforms Must Think Like Securities IssuersFractional loan interests, where one loan is divided and sold to multiple investors through web-based platforms, have grown popular. Regulators generally treat those interests as securities rather than simple participations, triggering offering exemption or registration, broker-dealer and investment adviser obligations.
Understanding ForbearancesA forbearance temporarily reduces a borrower’s regular installments or defers mortgage payments, with the deferred amounts still repayable. It assists borrowers facing hardship such as natural disaster, unemployment or unexpected injury, and does not eliminate the amount owed on the mortgage.
What You Need to Know about Consumer Bridge LoansHard money lenders making mainly business-purpose loans often see consumer bridge loans as a way to diversify while avoiding the most restrictive consumer protections. Many are unclear what qualifies as a bridge loan: Regulation Z exempts bridge or other temporary loans without actually defining them beyond two examples.
Bridge Loan
A short-term financing option that a borrower utilizes to bridge the gap between one event (either a purchase or a refinance) to the next (either a further refinance or the sale of the property).
Resources relating to Bridge Loan
Comparing CLTA and the ALTA Standard and Expanded Coverages in Loan Title Policies and the Practicalities in Closing on TimeRobust title coverage is the desirable outcome, yet lenders are sometimes told shortly before closing that the policy will be less extensive than expected. Setting cost aside, this weighs the two competing forces of coverage versus closing on time, and when to push back for what you expected.
What You Need to Know about Consumer Bridge LoansHard money lenders making mainly business-purpose loans often see consumer bridge loans as a way to diversify while avoiding the most restrictive consumer protections. Many are unclear what qualifies as a bridge loan: Regulation Z exempts bridge or other temporary loans without actually defining them beyond two examples.
Broker
A business or individual that acts as a facilitator or intermediary on behalf of others to fund, sell, or buy loans, real estate, businesses or other assets. A mortgage/loan broker arranges or facilitates the funding, selling or buying of mortgages / loans for a fee.
Resources relating to Broker
Lending, Brokering, or Servicing Licensing Requirements and their ExceptionsOnly a handful of states require a licence to lend, broker or service a loan, but where one is required strict compliance is essential — failure can bar you from operating in that state altogether. Explains general licensing applicability, common exceptions, and less common requirements.
Brokers Moving From Direct Sales to Mortgage PoolsPrivate-money lenders have long chased direct sales, providing niche, mezzanine and hard money financing with direct investor capital — profitable for broker and investor alike in good markets. More brokers are now moving to mortgage pools as investors seek the stability and consistent year-round returns funds offer.
How Not To Lose Your Broker Commission In A BankruptcyBrokers can still market and sell real property forming part of a bankruptcy estate, but the broker must first be approved by the bankruptcy court. Under 11 U.S.C. § 327(a), court approval is required for a trustee or debtor-in-possession. Serves as a guide to that approval process.
Broker Dealer
A business or individual that buys and sells securities on behalf of others for compensation. Broker-dealers must be duly licensed by state and federal securities regulators including FINRA. Individuals must pass and maintain good standing in specific exams offered through FINRA – these include Series 7, 82, 66, 65 exams.
Resources relating to Broker Dealer
Securities Laws: Raising Capital in Real Estate LEGALLYReal estate professionals raise capital from friends and family through to institutional LPs, and many myths surround the legalities. LLC or LP interests, debt instruments, warrants and equity or income participation contracts are, in most contexts, securities — so the issuer must either register or rely on an exemption.
Broker Price Opinion (BPO)
A property evaluation from a licensed real estate broker or mortgage broker.
Resources relating to Broker Price Opinion (BPO)
“Show Me the Equity!”Opens with a lender client whose entire underwriting process amounted to whether a deal had sufficient equity — approving it if so, declining it if not. That raises the harder question of how the property’s value was determined in the first place, and what valuation practice means for calculating equity.
Business Purpose Lending (BPL)
An industry phrase used to refer to the business of making loans secured by residential real estate – but only to those borrowers for whom the use of proceeds is for a commercial or business purpose. Commonly included loans are: Fix & Flip Loans (RTL Loans), DSCR Loans, SFR Construction Loans, and Bridge Loans
Also referred to as Business Purpose Loan
Resources relating to Business Purpose Lending (BPL)
Business Purpose Loans to Individuals Secured by Residential PropertyBusiness purpose loans to individuals secured by residential property are a niche but significant segment of private lending. They differ from owner-occupied mortgages because they are intended for business, investment or commercial purposes rather than personal, family or household use. Covers definition, scope and the compliance landscape.
Lending, Brokering, or Servicing Licensing Requirements and their ExceptionsOnly a handful of states require a licence to lend, broker or service a loan, but where one is required strict compliance is essential — failure can bar you from operating in that state altogether. Explains general licensing applicability, common exceptions, and less common requirements.
Navigating the Maze of Licensing Rules for Private Lenders: Simplifying Business Purpose Lending Secured by Residential Real EstateMyths and misconceptions surround licensing rules for business purpose lending secured by residential real estate, and contrary to popular belief several states do require a licence. Demystifies the state-by-state approach and highlights the requirements, obligations and complexities that matter.
C
Capital Sources
A general term to describe the various sources of capital, ie: Warehouse Line of Credit (WLOC), Master Repurchase Agreement, Credit Facility, High Net Worth Investors, Joint Ventures
Capitalization Rate (Cap Rate)
The rate of return on a property calculated by dividing the Net Operating Income (NOI) by the current market value of the property.
Resources relating to Capitalization Rate (Cap Rate)
The New Normal in Commercial Real Estate LendingCommercial real estate remains filled with uncertainty. State lockdowns decimated many CRE sectors and, unlike residential assets, commercial ones were largely overlooked by government assistance, driving higher default rates and forbearances. With stimulus mostly stopped, CRE lenders must adapt to a new normal.
Cash Out Refinance
A form of financing where an existing mortgage loan is replaced with a new larger loan, allowing the borrower to “cash out” on the difference between the initial loan balance and the new loan amount based on the increased value of the collateral property.
Combined Loan to Value (CLTV)
A calculation used by lenders to measure the total amount of loans and other liens secured by a property compared to its market value to assess the risk of lending money to a prospective borrower to purchase or refinance that property.
Formula:
CLTV= Home Value
—
Total Loans×100
Resources relating to Combined Loan to Value (CLTV)
Alternative Loan StructuresWith record low rates gone, inflation persistent and valuations falling, borrowers struggle to raise the capital needed to meet the lower loan-to-value requirements lenders now impose. That pressure has led many borrowers to ask lenders to approve alternative loan structures that were not sought when conditions were more favourable.
Commercial Real Estate (CRE)
A property that is used for business-related purposes, with the intent to generate profit, either from rental income or capital gain i.e., Multifamily, Hospitality, Mixed Use.
Resources relating to Commercial Real Estate (CRE)
Navigating the Maze of Licensing Rules for Private Lenders: Simplifying Business Purpose Lending Secured by Residential Real EstateMyths and misconceptions surround licensing rules for business purpose lending secured by residential real estate, and contrary to popular belief several states do require a licence. Demystifies the state-by-state approach and highlights the requirements, obligations and complexities that matter.
The New Normal in Commercial Real Estate LendingCommercial real estate remains filled with uncertainty. State lockdowns decimated many CRE sectors and, unlike residential assets, commercial ones were largely overlooked by government assistance, driving higher default rates and forbearances. With stimulus mostly stopped, CRE lenders must adapt to a new normal.
Multifamily Commercial Real Estate Consistently Proves Its WorthExamines how recessions affect commercial real estate rather than only the stock market. Draws on CBRE data covering multifamily, industrial and office performance across the 2001 and 2008–09 downturns, set against four decades containing five distinct recessionary periods.
Construction Reserve / Draws
Loan proceeds that are held in reserve and advanced in periodic disbursements, called Draws, to fund real estate construction costs.
Resources relating to Construction Reserve / Draws
Construction Loan Considerations: 5 Best Practices for LendersConstruction lending carries meaningful risk, so lenders need an overarching strategy that heeds property location, regulatory change, market fluctuation and the ability to repay or refinance. Borrowers should be assessed against the lender’s risk tolerance. Sets out five best practices.
Correspondence Program
An arrangement or partnership between a lender and mortgage broker or correspondent lender allowing correspondent lenders to originate loans on behalf of the lender while following set guidelines created by the lender. The arrangement usually involves where the originator will temporarily fund the loan with their own capital and sell the loan to the correspondent lender.
Resources relating to Correspondence Program
What is the difference between Table Funding, White Labeling, Wholesale, and Correspondent Lending?Private lenders often hear these four terms used interchangeably, and described inconsistently. Each describes something other than direct retail or balance sheet lending, where a lender uses its own capital. Explains what the terms actually mean and how each arrangement should be documented.
Correspondent Lender
A broker or originator that originates and funds a loan through a correspondence program offered by a wholesale lender.
Resources relating to Correspondent Lender
What is the difference between Table Funding, White Labeling, Wholesale, and Correspondent Lending?Private lenders often hear these four terms used interchangeably, and described inconsistently. Each describes something other than direct retail or balance sheet lending, where a lender uses its own capital. Explains what the terms actually mean and how each arrangement should be documented.
Credit Facility
A financial arrangement between a borrower and lender that provides the borrower access to a specific amount of credit over a set period. The facility is typically on a revolving basis and includes a collateral pledge arrangement in which the equity of the borrower company and/or its assets are pledged as collateral.
A private lender may establish a credit facility with a real estate developer, allowing the developer to draw on the funds as needed to finance various projects, such as renovations or new constructions, while only paying interest on the drawn amounts.
Cross Collateralization
A financing agreement where one or several assets are utilized as collateral for single or multiple loans.
Resources relating to Cross Collateralization
Making Sense of Cross-Default and Cross-Collateralization ProvisionsCross-default and cross-collateralization are among the most misunderstood concepts in commercial non-conventional lending. Professionals often interchange the terms and intertwine their effects, then half-adopt the idea without the comprehension needed to benefit. Separates the two and explains how each works.
Cross Collateralization and Cross-Default ProvisionsCollateralization is the act of using an asset to secure a loan, with the owner conveying an equitable title or security interest held by the lender. It commonly involves a promissory note plus a recorded mortgage or deed of trust, placing a lien against title that must be satisfied before it can be released.
D
Debt Fund
An investment fund that invests in debt instruments, such as loans, bonds, or fixed-income securities. Typically, a limited partnership or limited liability company that offers limited partnership interests or membership interests respectively to investors for certain stated returns or profit participation.
Resources relating to Debt Fund
3 Pitfalls to Avoid in Your Debt FundsFunds have surged in popularity in private lending, and years of structuring debt funds nationwide across a range of sizes has surfaced recurring design mistakes. Identifies what to avoid when establishing a fund, beginning with the kitchen sink problem of trying to do too much in one vehicle.
When is a Fund NOT Right for You?Debt funds let private lenders pool capital from multiple investors across mortgages, business loans and other debt instruments, and are a common way to scale while offering investors a more structured option. Useful as they are, funds are not always the right answer, and this sets out when forming one is the wrong choice.
Debt Service
The dollar amount required to cover the payment of a loan, whether interest-only or principal and interest, over a specific period.
The lender evaluated the borrower’s financial statements to ensure that their income was sufficient to cover the debt service, which included both principal and interest payments on the loan.
Debt to Income Ratio (DTI)
A formula that determines a borrower’s ability to repay debt and manage monthly loan payments, calculated by dividing gross monthly income by monthly debt payments.
Debt
÷ X 100 = DTI%
Income
Debt-Service Coverage Ratio (DSCR)
A metric used by lenders to determine the borrower’s ability to repay their debt by comparing the borrower’s net operating income to their debt service obligations.
Resources relating to Debt-Service Coverage Ratio (DSCR)
The Impact of Rising Interest Rates on Long Term Rental/DSCR LoansPrivate lending depends heavily on market economics, so strategy must account for where the economy is heading as well as risk tolerance and diversification. Although inflating property values support returns over time, rising rates make borrowers less likely to borrow or more cautious — a effect lenders must weigh.
Deed in Lieu of Foreclosure
A legal arrangement/agreement where a borrower transfers ownership of a mortgaged property to a lender to fulfill a loan agreement and avoid foreclosure.
Resources relating to Deed in Lieu of Foreclosure
Why You Should Consider a Deed in Lieu of ForeclosureA deed in lieu of foreclosure is an instrument by which a borrower conveys its interest in the property to the lender to satisfy the loan and avoid foreclosure. It is used where the borrower cannot or will not cure defaults but neither party wants a lengthy, expensive foreclosure. Sets out the advantages to both sides.
Deed of Trust
A legal document/agreement between a lender, borrower, and third-party trustee, that uses real estate as collateral to secure a loan. Also known as a Trust Deed. Certain states utilize a Deed of Trust to secure real estate loans, others use mortgages.
Resources relating to Deed of Trust
Understanding Deeds of Trust and Their BenefitsA deed of trust is a legal instrument used to secure a real estate loan, recorded with the local recorder or title registrar, and signing one is commonly a mandatory closing step. It is generally prepared by the lender. Explains how it differs from a mortgage agreement, since some jurisdictions use one in place of the other.
Default
The failure to fulfill the terms and conditions of a loan agreement.
Resources relating to Default
Making Sense of Cross-Default and Cross-Collateralization ProvisionsCross-default and cross-collateralization are among the most misunderstood concepts in commercial non-conventional lending. Professionals often interchange the terms and intertwine their effects, then half-adopt the idea without the comprehension needed to benefit. Separates the two and explains how each works.
Borrower Defaults – How to Build a Winning Litigation Strategy in 2023A webinar on constructing a litigation strategy when borrowers default, hosted by Steven E. Ernest, Esq. Addresses how lenders should approach default litigation tactically rather than reactively.
Options After Default: California Foreclosure, Default Interest, Loss Mitigation, and RecourseA webinar on managing loans that do not perform as intended, covering California foreclosure, default interest, loss mitigation and recourse. Hosted by Nema Daghbandan, Esq., Steven E. Ernest, Esq. and Melissa C. Martorella, Esq. Lenders must be tactical in understanding what to do when a borrower defaults.
Delinquent
A term used to describe the state of falling behind on payments.
Resources relating to Delinquent
Loan Participation Agreements: Key Insights and TipsSelling participation interests improves the originating lender’s liquidity and mitigates its risk profile, while letting participants diversify without underwriting or servicing the loans. Several discreet risks accompany buying and selling participations, and can cause significant issues if not identified promptly.
Desktop Appraisal
A property valuation conducted by a licensed appraiser without physically visiting the property using technology and data to assess the property value.
Direct Lender
An individual or business that provides loans directly to a borrower as opposed to correspondence or wholesale funding relationships. Direct lenders are generally considered to have more discretion as opposed to wholesale / correspondent lenders.
The borrower preferred to work with a direct lender to expedite the loan approval process and secure financing quickly for their new property acquisition.
Dry Funding
A disbursement process where the lender does not distribute loan funds until after all requirements are met or documents are signed.
The lender did not officially close the loan until after final title verification, opting for Dry Funding.
DSCR Loan
A type of long-term, fully amortized, loan that utilizes the Debt-Service Coverage Ratio to determine the borrower’s ability to repay the loan. Typically used for rental properties, also referred to as Term Rental Loans. Applies to both SFR and Multifamily properties.
Resources relating to DSCR Loan
The Impact of Rising Interest Rates on Long Term Rental/DSCR LoansPrivate lending depends heavily on market economics, so strategy must account for where the economy is heading as well as risk tolerance and diversification. Although inflating property values support returns over time, rising rates make borrowers less likely to borrow or more cautious — a effect lenders must weigh.
Dutch Interest
A method of calculating interest based on the risk assessment of the project, with interest charged based on the full loan amount, even if the principal has not been fully drawn by the borrower. This method is commonly used in construction loans.
The Borrower selected a loan offer with dutch interest to receive funding for their higher-risk project.
E
Environmental Indemnity
Used commonly in Commercial Real Estate loans – this is a legal agreement between a lender and a borrower, providing protection or security from damage or losses caused by environmental factors such as environmental contamination or risks.
Escrow
A financial arrangement where a third party manages and holds funds for two parties that are involved in a transaction until specific conditions are met. The third party is typically required to be duly licensed as an escrow company by the state in which they practice.
Exit Fee
A fee a lender charges a borrower at the maturity of the loan or before. This allows the lender to recoup any costs or prevent any unexpected losses. Separate from a pre-payment penalty, which is a fee for early paydown.
Extension
An agreement between a borrower and lender to provide the borrower additional time to repay a loan past its original maturity date.
Resources relating to Extension
The Importance of Documenting a ModificationModifications are a popular way to restructure a loan or handle a borrower near default, and can change virtually any term from maturity date to added collateral. Despite that flexibility, a modification must be documented correctly to be enforceable and to preserve the lender’s original lien priority.
F
Family Offices
A family office is a private wealth management advisory firm that serves ultra-high-net-worth individuals and families. It provides a comprehensive suite of financial and personal services, tailored to the specific needs and goals of the family. These services can include investment management, tax planning, estate planning, philanthropy, and even concierge-style services.
After evaluating various investment options, the family office decided to allocate a portion of their capital to private lending to achieve higher yields while maintaining a conservative risk profile.
Fix & Flip Loan / Rehabilitation Loan
A Bridge Loan designed for borrowers who intend to purchase properties, renovate them, and sell them for profit.
Resources relating to Fix & Flip Loan / Rehabilitation Loan
Understanding Lender Liability: Avoid California’s 10-Year Liability for Construction Defects in Fix and Flip PropertiesA lender taking back a defaulted fix and flip may be tempted to finish the project to mitigate a loss where there is no equity. California’s statute of limitations for construction defect claims runs ten years, so completing the work can attach long-tail liability to the lender.
Fixed Interest Rate
An interest rate that remains the same for the entirety of the loan agreement, regardless of changes in market condition or other variables.
Forbearance
A temporary agreement in which a lender allows a borrower to reduce or pause their loan payments for a period of time without penalty.
Resources relating to Forbearance
Modification vs. Forbearance: Choosing the Right AgreementWhen a loan defaults the simple response is foreclosure, but many lenders prefer to restructure and give the borrower a route back. Compares the two most common accommodations — modification, which amends the loan terms, and forbearance — to help lenders decide which fits their situation.
Forbearance Agreements 101: What To Do When Your Borrower Can’t PayNatural disasters, pandemics and looming recessions push borrowers to request payment relief. Lenders must weigh the particular borrower’s facts, then ensure any forbearance is properly documented. Covers how to judge when a forbearance agreement is necessary and how to execute one correctly.
Understanding ForbearancesA forbearance temporarily reduces a borrower’s regular installments or defers mortgage payments, with the deferred amounts still repayable. It assists borrowers facing hardship such as natural disaster, unemployment or unexpected injury, and does not eliminate the amount owed on the mortgage.
Foreclosure
A legal process a lender uses to recover the loan balance from a borrower who has failed to make payments by forcing the sale of the property.
Full Recourse
A loan agreement that grants a lender the right to seek repayment by seizing a borrower’s personal assets in addition to the collateral to repay the outstanding balance on a loan if the borrower defaults.
The loan terms held a full recourse agreement to provide the lender with additional protection if the borrower defaulted.
Fully Amortized Adjustable-Rate Mortgage (ARM)
A loan that combines the features of fixed-rate and adjustable-rate mortgages.
Fund
A investment vehicle designed to pool investor capital in the form of Limited Partnership or LLC Membership Interests to acquire, invest, and pool assets for a stated return or participation in profits. See Debt Fund
G
Ground-Up Construction Loan
A Bridge Loan designed for borrowers looking to fully develop a structure from the ground up, providing necessary capital for purchasing land, covering construction costs, and permits or fees.
H
Hard Money Lending
A lending business practice where the lenders focus primarily or only on the value of the collateral (property) rather than borrower credit and financial history. Typically hard money lending is associated with more efficient underwriting and quicker closings as compared to conventional lending practices. This is commonly used in real estate finance.
Resources relating to Hard Money Lending
Dodd-Frank’s Effect on Hard Money LendingDodd-Frank was signed into law in 2010 in response to the financial crisis, intended to protect consumers from predatory mortgage lenders, payday lenders, banks and credit card companies, and to regulate financial markets more closely. It also created the CFPB. Explains what that framework means for hard money lenders specifically.
High Net Worth Investors (HNWI)
Individuals with high net worths that usually meet the definition of Accredited Investor as defined by 17 CFR 230.501:
a. Individuals: $1,000,000. net worth (less primary residence) or $200,000 adjusted gross income for the past two years or $300,000 for husband and wife or passed Series 7, 65, or 82 in good standing.
b. Entities: $5,000,000.in assets or all owners are individually accredited investors.
c. Trusts: $5,000,000. in assets.
Home Equity Line of Credit (HELOC)
A line of credit that is secured by the borrower’s property, allowing the borrower to withdraw funds based on the property’s equity. HELOCs are typically revolving lines of credit.
I
Income Property
Real estate that is developed or purchased with the intent to generate income through leasing the property to others, or generating operating income from business operations on sight.
Institutional Investors
A large organization that accumulates funds to purchase or invest in securities, property, and other assets on behalf of its members, clients, or shareholders.
Institutional Investors can include:
- Aggregators
- Banks – National, regional, and local banks that make loans on real estate and lend to private lenders in the form of “Warehouse Lines of Credit.”
- Publicly Traded REITs – Real Estate Investment Trusts that are publicly traded on an exchange, like the New York Stock Exchange.
- Private Equity Firms – Investment partnerships that buy, manage, and sell companies, operating on behalf of institutional and accredited investors.
Interest Reserve
A portion of the loan set aside by the lender to cover the borrower’s interest payments during the loan term, ensuring that the lender will receive interest payments on time if the borrower has insufficient funds.
The private lender included an interest reserve in the loan agreement, allowing the borrower to allocate funds specifically for interest payments while they renovated the property and prepared it for sale.
J
Judicial Foreclosure
A legal process that involves filing a lawsuit in a court of law, utilized by lenders to recover unpaid loan proceeds and fees and/or claim property when a borrower defaults on a loan.
Junior Loan
Also known as a subordinated loan or second lien
A type of loan that sits in a position junior to another loan in terms of payment priority.
The borrower took out a junior loan to finance the completion of the project, knowing that it would sit behind the senior loan in the repayment hierarchy.
K
Key Principal (KP)
The primary individual or entity who takes on the financial responsibility of a loan, often required to provide collateral or guarantee the loan.
L
Land Loan
A type of loan used to finance the purchase of a plot(s) of land.
The loan may secure “raw land,” which has no entitlements (no permits, engineering, legal approvals or infrastructure; undeveloped), or “entitled land,” which does have entitlements (has necessary legal approvals, ready for development).
Lender Finance
A type of funding in which lenders will provide other lenders with the financing they need to fund new loans. Lender finance loans are typically secured by the borrower’s equity or the loans funded using the lender finance loan proceeds.
The firm utilized lender finance to leverage its investment in real estate projects, allowing for greater purchasing power while minimizing upfront capital requirements.
Lien
A legal claim from a lender that is placed on a borrower’s property to secure the repayment of a loan or to secure the repayment of a debt. A lien is typically recorded with the appropriate government agency. Secretary of State for personal property, County Recorder’s Office for real property. Examples: Mortgage / Deed of Trust are liens. Mechanic’s Lien. Tax Lien.
Resources relating to Lien
Ensuring Lien Priority for Loan ModificationsCalifornia lien priority generally follows the first in time, first in right rule, so the earliest recorded lien outranks later ones. There are exceptions, and when a senior lender modifies a loan with a junior lienholder behind it, care is needed to ensure the modification does not disturb priority.
Protecting Your Lien Priority from Mechanic’s LiensEvery state allows contractors, subcontractors and material suppliers to record a mechanics lien for unpaid goods or services, in the amount of the value rendered. Once recorded, the lien appears on title searches and can in some cases take precedence over a lender’s recorded interest.
Liquid Asset
An asset type that can be quickly converted to cash so the asset can be sold with minimal impact on its value.
Loan Buyer
An entity or individual that purchases loan portfolios or loans from lenders.
The loan buyer purchased a portfolio of residential mortgages from the private lender, hoping to profit from the steady stream of interest payments over time.
Loan Fees
Charges associated with the processing, approvals, and maintenance of a loan, in addition to the interest rate, typically paid by the borrower.
Types of loan fees include:
i. Origination Fees – Fees charged for obtaining a loan. Typically a percentage of the loan amount.
ii. Underwriting Fees – Fees charged for underwriting the loan, typically included in finance charges.
iii. Late Fees – Fees charged as a percentage of the payment due when late.
iv. Exit Fees – Additional compensation due at the end of the loan when the loan is paid off.
Loan Origination
The process of finding a borrower who needs a loan, negotiating the terms of the loan and submitting it for underwriting and funding.
Loan to Cost (LTC)
A metric used by lenders to determine the potential risk associated with financing a construction project calculated by dividing the total loan amount by the total project cost.
Loan to Value (LTV)
A ratio used by lenders to determine the potential risk of a loan calculated by comparing the amount of the loan to the appraised value (or purchase price) of the property.
M
Master Repurchase Agreement
A short-term borrowing mechanism that is used by private lenders to borrow funds by using their loans as collateral. A lender sells a loan or other asset (such as mortgage-backed securities) to a buyer (another financial institution), with the agreement to repurchase the asset later. These are used as a means to provide financing to lenders to fund or lever loans.
The lender entered a Master Repurchase Agreement (MRA) with the bank, allowing them to temporarily sell their loan and access necessary capital to fund new projects while agreeing to repurchase the loan within a set amount of time.
Mezzanine Loan
A type of Junior Loan that sits between senior secured debt and junior secured debt. It is secured by the all or a portion of the equity (ownership interests) of the borrower entity. These loans typically have higher interest rates and/or equity in the underlying property.
The borrower secured a mezzanine loan to bridge the gap in financing for its expansion, knowing that it would come with higher interest rates due to its subordinate position in the capital structure.
Mortgage Banker
An individual or entity that funds, services, and originates mortgage loans.
Mortgage Insurance
An insurance policy to protect lenders if the borrower defaults on a mortgage loan.
N
Net Operating Income (NOI)
A metric used to assess the profitability of a property by deducting all operating expenses from the total income generated by the property.
NOI=Gross Rental Income−Operating Expenses
Non-Performing Loan (NPL)
A loan that is not performing according to its terms, either from the borrower failing to fulfill payment obligations, or the note has matured without being paid off.
A lender issues a $500,000 loan to a real estate developer for a property renovation project. The developer makes timely payments for the first six months but then experiences financial difficulties, causing them to miss payments for three consecutive months. At this point, the lender classifies the loan as a non-performing loan due to the missed payments.
Note-on-Note Financing
A lender financing program where a lender provides financing that is secured by an existing loan.
A lender has originated $10 million worth of loans to real estate investors. To raise additional capital for future lending without selling the loans, the lender seeks a note-on-note financing arrangement. They pledge these $10 million in existing loans as collateral for a $5 million loan from an institutional investor. The lender now has $5 million in capital to lend to new borrowers while retaining the interest payments from the original loans.
O
Originator
An individual or company that sources, structures, and processes loan applications, acting as an intermediary between borrower and lender.
Resources relating to Originator
Table Funding v. Selling Loans for Private LendersLending is ancient, but its mechanics keep changing. Before private lending was institutionalised, investor loans were syndicated and crowd funded by local lenders using friends-and-family capital. Compares table funding against outright loan sales now that Wall Street-backed capital has entered the space.
P
Personal Guaranty
A legal commitment made by an individual or entity to accept full responsibility of a loan if the borrower defaults on the loan.
Resources relating to Personal Guaranty
How to Use a Personal Guaranty to Your AdvantageMost lenders now obtain personal guaranties on every loan, then file them away without knowing what to do if the loan goes awry. Usually the property repays the loan in full and the guaranty is forgotten. Covers the guaranty’s legal and psychological purpose, and how to use it when it is needed.
A Personal Guaranty Contract Can Help Lenders Recover Even After ForeclosureA personal guaranty can let a lender recover a debt even after the securing property has been foreclosed. California’s one-action rule allows only one form of action to recover a debt secured by real property, and courts read it together with the security-first rule — both shape how a guaranty can be enforced.
Prepayment Penalty
A fee incurred by a borrower when their loan is paid off early before the loan term ends.
The lender charged the borrower a prepayment penalty fee to recoup lost interest income.
Prequalification
An assessment process given by a lender to evaluate a borrower’s financial situation to determine the loan amount the borrower is qualified to receive.
The borrower submitted their basic financial information to the lender in a prequalification process.
Principal
The amount of the loan or money borrowed, excluding interest or fees, that must be repaid.
As a borrower makes timely payments, their principal balance decreases.
Private Equity Firms
A financial institution that manages investment funds on behalf of institutional and accredited investors to generate returns. They typically invest in other companies by acquiring ownership interests.
A private equity firm is looking to acquire a new private lending business to add to its portfolio, with the intent of taking it public or reselling the business.
Private Label Securitization
A securitization not issued or offered by an investment bank, government agency, or sponsored program.
The investment firm opted for private label securitization to package and sell its mortgage loans.
Private Lender
GENERAL term: A business or individual that is not a bank or financial institution and makes loans secured by real estate.
INDUSTRY term: A lender that is not a bank or financial institution that concentrates on making business purpose loans secured by SFR or loans secured by CRE.
Private Lending
GENERAL term:
The business practice of a private lender. A type of financing offered by entities or individuals that are not banks or financial institutions.
INDUSTRY term:
A subset of the mortgage industry that concentrates on loans secured by residential or commercial real estate but the lenders are not banks or other depository institutions. These loans are primarily commercially oriented or for “business purpose”. This Bridge Loans, RTL or Fix & Flip Loans, DSCR Loans and Construction Loans.
PRIVATE LENDING CAN REFER TO:
Private Money Lending
Synonymous with Hard Money Lending.
The practice of smaller private businesses or individuals lending personal investment funds to borrowers, with a focus on real estate investments, conducted outside the traditional financial industry.
The real estate investor turned to private money lending when traditional banks refused to finance his renovation project.
Promissory Note
A written promise from a borrower to a lender in a legally binding document, where the borrower promises to pay the lender a specific amount under agreed-upon terms.
Resources relating to Promissory Note
Using Personal Property to Further Secure Your Real Estate LoanRising rates, inflation and stagnating or falling property values make it hard to lend on value alone without breaching loan-to-value limits or risk tolerances. Taking additional real property is one answer; this examines using personal property as supplemental collateral.
Q
Qualifying Mortgage
A loan that qualifies for conventional mortgage financing offered by government agency lenders and banks.
R
Rated Securitization
Securitization rated by a rating agency, like Morningstar, to assess risk and meet due diligence requirements.
The firm chose to invest in rated securitization products because they provide a more transparent assessment of credit risk.
Real Estate Investment Trusts (REITs)
An entity that operates, finances, or owns income-producing real estate, providing individual investors an opportunity to earn a share of the income without having to finance or manage the properties directly. REITs must meet certain testing obligations to qualify. These qualifications are set forth by the IRS in 26 U.S. Code S856, et. al
Resources relating to Real Estate Investment Trusts (REITs)
3 Major Issues REITs Can Create and How to Avoid ThemREITs became a staple for debt funds after 2017, offering 20% tax savings, UBTI blocking and state withholding blocking. With the Tax Cuts and Jobs Act expiring, benefits such as the QBI deduction are uncertain and the structure less effective. Identifies three problems REITs create and how to avoid them.
Meeting the REIT 100 Investor TestMaintaining REIT status requires at least 100 equity holders by January 30 of the year following the election, and the test is non-negotiable. Daunting as that sounds for smaller private lending entities, preferred equity can also qualify holders toward the total.
Decision Making with REITs in Light of the 199A Sunset ProvisionThe Section 199A QBI deduction created a trend toward private, non-traded REITs in private lending. Its sunset provision threatened to remove the 20% pass-through deduction, leaving fund managers uncertain. Explains how Section 199A works and what to weigh when deciding whether a REIT still makes sense.
Mythbusting: Common Myths Regarding Mortgage REITs for Private LendersMortgage REITs became popular with private lending funds largely for the 20% Qualified Business Income deduction on REIT dividends. Tests the common myths against the actual rules, starting with the belief that a fund needs hundreds of investors — the Closely Held and 100 Investor rules say otherwise.
Real Estate Owned (REO)
Properties owned by a lender, bank, or government agency, after the unsuccessful sale of the property at a foreclosure auction in association with a foreclosure of a defaulted loan.
Resources relating to Real Estate Owned (REO)
Conversion of Investment in Loan Receivables to an REO Via ForeclosureRecent macro-economic conditions have left most loan operators holding non-performing loans, at times forcing foreclosure and producing Real Estate Owned. Provides high-level guidance on converting a loan receivable into an REO, which is a realizable transaction for both accounting and tax purposes.
Registered Investment Advisors (RIA)
An individual or firm registered with a state securities regulator, FINRA , and/or the Securities and Exchange Commission (SEC) that manage investment portfolios, recommend investments, and provide investment advice for clients.
Resources relating to Registered Investment Advisors (RIA)
A Deeper Dive into Securities Exemptions for Private PlacementsA company may not offer or sell securities unless the offering is registered with the SEC or an exemption is available. Regulation D and Regulation A of the Securities Act of 1933 allow capital to be raised through private placements — useful when you want to raise from investors while retaining control of the fund, business, or asset.
Reperforming Loan (RPL)
A loan that was previously considered to be non-performing, that has been rectified, modified, or refinanced by the borrower fulfilling timely payments.
A lender buys a reperforming loan at a discount, having previously been classified as non-performing due to the borrower missing several payments.
Residential Transitionary Lending (RTL)
A term used to describe short-term loans (12 months or less) secured by residential real estate. This term is often associated with residential investment properties as opposed to primary residences.
Similar to: Fix & Flip Lending, Business Purpose Lending (BPL)
When a borrower is looking to upgrade to a larger home but requires immediate funds to purchase the new property before selling their current one, they often rely on residential transitionary lending to facilitate the transition smoothly.
S
Secured Loan
A loan backed by borrower collateral, which can include property such as vehicles, real estate, or other personal assets.
Securitization
The financial process of pooling various income producing assets, such as mortgage loans or consumer debt, and levering them in tranches with bonds or other interest-bearing securities that can be sold to investors.
Related Terms: Private Label Securitization, Rated Securitization
They employed securitization to bundle their real estate loans into investment-grade securities.
Senior Loan
A type of loan that takes priority over all other debt in terms of repayment in the event of borrower default [link to default] or bankruptcy and must be repaid before any other debt.
Related Terms: Junior Loan
The private lender approved a senior loan for the commercial real estate project, ensuring that their investment was secured by the property and that they would be the first to be repaid in case of default.
Shadow Funding
INDUSTRY TERM: An alternate way to describe Table Funding.
In the competitive real estate market, many developers are turning to shadow funding to quickly secure the capital they need for their projects, bypassing traditional lending institutions and their lengthy approval processes.
Shared Appreciation Mortgage (SAM)
A type of mortgage loan where the borrower and lender share a percentage of the appreciation in the property value over a specified time.
The lender offered a shared appreciation mortgage to the borrower, which allowed the borrower to benefit from lower monthly payments while agreeing to share a portion of the property’s appreciation value with the lender when the home is sold.
T
Table Funding
A form of financing where the table funder will fund the loan at closing on behalf of the originating lender, so it appears as if the originating lender is providing the funds. After closing, the table funder will buy the loan and hold it under a generic company name to avoid any involvement in the original closing. This allows the originating lender to offer a loan without using their own funds.
Resources relating to Table Funding
Table Funding v. Selling Loans for Private LendersLending is ancient, but its mechanics keep changing. Before private lending was institutionalised, investor loans were syndicated and crowd funded by local lenders using friends-and-family capital. Compares table funding against outright loan sales now that Wall Street-backed capital has entered the space.
What is the difference between Table Funding, White Labeling, Wholesale, and Correspondent Lending?Private lenders often hear these four terms used interchangeably, and described inconsistently. Each describes something other than direct retail or balance sheet lending, where a lender uses its own capital. Explains what the terms actually mean and how each arrangement should be documented.
Title Insurance
An insurance policy to protect property buyers and lenders from potential financial losses or damages due to title defects. This can include – encumbrances, liens, or ownership disputes.
Resources relating to Title Insurance
Dealing with Title Insurance on Cross-Collateralized TransactionsTransactions involving a portfolio of properties raise title insurance issues that single-property deals do not. Lenders should request particular coverage types and stay mindful of timing and state-specific matters. Addresses the problems common to portfolio transactions so lenders can prepare.
How Title Insurance Benefits All Parties to a TransactionTitle insurance was first developed to protect the parties to a real estate transaction. Matters affecting ownership are entered in public records, and a title search locates problems before closing so they can be corrected. Some defects escape even a careful search, which is precisely where the policy earns its place.
What’s Wrong with Exceptions on Your Title Insurance Policy?Title insurance indemnifies lenders and buyers against defects in title, and without it a lender could lose its entire security interest for a loan. Even with a policy in hand, exceptions carved out of coverage can still cause problems. Explains how those exceptions arise from existing claims to the property.
U
Ultra-High Net Worth Individual
An individual with financial assets that exceed a set threshold, often defined by having at least $30 million in liquid assets.
Similar to: High Net Worth Individual
Unsecured Loan
A loan not backed by collateral, i.e. a house or car, with the loan issued to the borrower based on the borrower’s creditworthiness.
The borrower had a high credit score, so no collateral was necessary for loan approval.
Usury
A law that sets a maximum interest rate on loans, with the interest rate maximum varying state-by-state.
Resources relating to Usury
Navigating Complex Usury Laws as a Private LenderUsury laws set a maximum interest rate and vary tremendously between states, with some imposing no limit on business-purpose loans. States balance a lender’s need to charge interest as a hedge against risk against protecting borrowers from gouging. Reviews several state frameworks as examples.
Unconscionability and Usury: Where Do You Draw the Line?Usury is charging interest above the statutory maximum. California restricts non-exempt lenders to the greater of ten percent APR, or five percent above the Federal Reserve Bank of San Francisco’s discount rate, on money used for personal or household purposes. Even usury-exempt loans may still be challenged under California unconscionability statutes.
Buying Notes from Banks and Think You’re Okay From Usury? Think Again.In Madden v. Midland Funding, LLC, the Second Circuit held that a non-bank entity taking assignment of debt originated by a national bank is not entitled to protection from usury claims under the National Bank Act. The Supreme Court declined to review the decision, so usury laws still reach debt purchased from an otherwise exempt bank.
V
Valuation
The process that estimates the current or projected value of a property.
Related Terms: Broker Price Opinion, Desktop Appraisal.
W
Warehouse Line of Credit (WLOC)
A revolving line of credit used by financial institutions and private lenders allowing them to borrow funds to finance the funding of new loans or recapitalize existing loans.
A lender utilized a warehouse line of credit to finance a batch of loans it had originated.
Weighted Average Coupon
A measurement used to determine the average rate of return on a pool of assets (such as loans).
Calculated by: the sum of the rate of return on the assets in the pool, multiplied by the individual value of the asset, divided by the total outstanding value of all assets in the pool.
Weighted Average Life
A measurement used to determine the average length of time it takes for the principal of a loan or security to be repaid.
Calculated by: weighing the time until each cash flow (usually principal payments) is received against the total cash flows.
White Label
An arrangement where a lender offers loans under their own branding, while a larger entity provides the funding and performs the back-end operations.
Resources relating to White Label
What is the difference between Table Funding, White Labeling, Wholesale, and Correspondent Lending?Private lenders often hear these four terms used interchangeably, and described inconsistently. Each describes something other than direct retail or balance sheet lending, where a lender uses its own capital. Explains what the terms actually mean and how each arrangement should be documented.
White Label Lender
An individual or entity that offers loan products under another company’s name, allowing them to provide services without developing or managing the products themselves.
Resources relating to White Label Lender
What is the difference between Table Funding, White Labeling, Wholesale, and Correspondent Lending?Private lenders often hear these four terms used interchangeably, and described inconsistently. Each describes something other than direct retail or balance sheet lending, where a lender uses its own capital. Explains what the terms actually mean and how each arrangement should be documented.
Wholesale Lender
An individual or entity that offers loan products to financial advisors, mortgage brokers, or other intermediaries, rather than lending directly to a consumer. This term can apply to Correspondent, White Label, and Table Funder.
Resources relating to Wholesale Lender
What is the difference between Table Funding, White Labeling, Wholesale, and Correspondent Lending?Private lenders often hear these four terms used interchangeably, and described inconsistently. Each describes something other than direct retail or balance sheet lending, where a lender uses its own capital. Explains what the terms actually mean and how each arrangement should be documented.
Workout
A negotiation process between a borrower and a lender to resolve a financial situation or distressed loan without enforcing legal action.
The lender and the borrower agreed to a workout plan to restructure the loan terms, allowing the borrower to avoid foreclosure and continue making manageable payments
X
X-Date
An informal term that refers to the expiration date or maturity of a loan, signifying the deadline for full repayment.
Y
Yield
The earnings produced and received from an investment over a specific period.
Resources relating to Yield
Private Construction Lending – Avoiding Pitfalls To Reach That Higher YieldFix and flip lending boomed as traditional banks tightened standards, but an overcrowded field now struggles to find deals with adequate yield. Construction lending offers a higher return, and this sets out the pitfalls lenders must avoid to capture it.
Yield Spread Premiums (YS)
Payments made by lenders to loan originators or mortgage brokers when a loan is originated with an interest rate higher than the par rate or purchase rate.
Resources relating to Yield Spread Premiums (YS)
Yield Spread Premiums: A Key Tool for BrokersA yield spread premium is lender-paid compensation a broker earns for delivering a loan priced above the lender’s par rate. Loans below par typically require borrower-paid points, while above-par loans generate a YSP. Explains how brokers use them to balance closing costs and secure fair compensation.
Z
Zone/Zoning
The classification of a property which dictates its use as stated by local government regulations, designating areas for specific purposes. Zoning types include Residential, Commercial, Industrial.
Resources relating to Zone/Zoning
Opportunity Zones – A Great Opportunity for Bridge LendersOpportunity Zone investments let investors eliminate federal capital gain taxes while reinvigorating underserved communities. Their structure also creates distinct advantages for bridge lenders and project sponsors. Covers the history of the program and the underwriting strategies lenders can apply.
Have a question about any of these terms?
Our attorneys work with private lenders nationwide. If a definition raises a question about your own loans, documents, or compliance obligations, we are glad to talk it through.