As private lending continues to grow across the U.S., many lenders are seeking efficient ways to launch or expand their lending operations without falling into regulatory pitfalls. A common question we hear at Geraci LLP is: Do I need a license to lend privately?
The answer often depends on where you operate, what types of loans you’re offering, and who your borrowers are. While some private lenders may qualify for licensing exemptions, those exemptions come with strict conditions and don’t eliminate the need for ongoing compliance.
In this article, we break down how private lenders can determine if they’re exempt and what they must still do to stay compliant.
What Are Licensing Exemptions for Private Lenders?
Many states offer licensing exemptions for certain types of private lenders — typically those who:
- Make a small number of loans annually
- Lend exclusively to commercial or business-purpose borrowers
- Work only with high-net-worth individuals or institutional investors
- Do not advertise or solicit to the general public
- Lend using their own capital and not investor funds
These exemptions are intended to streamline regulation for sophisticated, non-consumer transactions. However, claiming an exemption without meeting every requirement can expose you to serious regulatory risk.
Common Types of Licensing Exemptions by State
Here’s a snapshot of how licensing exemptions may work:
California
- Business-purpose loans may be exempt from CFLL licensing if the lender does not solicit or broker loans.
- Loans made through a licensed mortgage broker may qualify for exemption under certain scenarios.
- However, servicing, advertising, and repeat lending can still trigger licensing obligations.
Florida
- Exemption may be available for lenders who only make commercial loans and do not hold themselves out as engaged in the business of making loans.
Arizona
- Certain private lenders are exempt if they make fewer than five loans per year secured by real property.
Texas
- Business-purpose loans made with the lender’s own funds and without solicitation may not require a license, but compliance with usury and disclosure laws is still required.
Each exemption is nuanced. You should always consult legal counsel to ensure your model fits squarely within a claimed exemption.
Key Risks of Misapplying an Exemption
Private lenders who incorrectly assume they are exempt can face:
- Regulatory fines and cease-and-desist orders
- Loss of enforceability of loan agreements
- Investor litigation
- Permanent reputational harm
Even if exempt from licensing, private lenders may still be required to:
- File notice exemptions with state regulators
- Maintain internal policies and disclosures
- Avoid using unlicensed loan brokers
Ongoing Compliance Obligations (Even If You’re Exempt)
- Federal Lending Laws Still Apply
Even exempt private lenders must comply with:
- Truth in Lending Act (TILA) (for consumer loans)
- Equal Credit Opportunity Act (ECOA)
- Fair Credit Reporting Act (FCRA)
- Anti-Money Laundering (AML) requirements if operating a fund
- Proper Disclosures
Even if you’re not licensed, you may be required to disclose:
- Loan terms clearly and in writing
- Any material risks or fees to investors
- How your funds are managed, especially if using pooled capital
- Recordkeeping and Audit Readiness
Private lenders must retain:
- Loan files and communications
- Borrower financials and underwriting criteria
- Investor documents and capital call records
This helps ensure readiness in the event of regulatory inquiries or investor disputes.
- Advertising and Marketing Restrictions
Lenders who rely on exemptions must avoid general solicitation unless permitted (e.g., under Reg D Rule 506(c)) and must not misrepresent their licensing status.
How Geraci LLP Supports Private Lenders
At Geraci LLP, we provide:
- Exemption Assessments: We analyze your lending model and jurisdictions to confirm if and where exemptions apply.
- Compliance Programs: We develop policies and procedures that keep you compliant with state and federal rules — even without a license.
- Exemption Filings: We help prepare and file required exemption notices or disclosures with regulators.
- Investor Compliance: We guide you on how to structure and manage private capital to stay compliant under securities laws.
- Audit & Enforcement Support: If you face a regulator inquiry, we’re here to defend your rights and protect your business.
Conclusion
Licensing exemptions can be a powerful tool for private lenders — but only if used correctly. Relying on “what you heard from a colleague” or “how others are doing it” can lead to compliance failure. Even exempt lenders must maintain rigorous standards, accurate documentation, and awareness of ongoing obligations.
If you’re considering launching or scaling a private lending business, don’t leave compliance to chance. Contact Geraci LLP for tailored legal guidance to help you operate efficiently, legally, and confidently.
