Of course regardless of the type of loan, there should be documentation, when dealing with private money a private lender agreement is important. Everything should be in writing so that all expectations are in black and white and everyone knows what is expected so that there are no surprises (or very little). Who knows 2 years down the road you may not remember what was discussed with the loan was taken out right? Documenting everything keeps the memory for you.
Not only does having an agreement in writing keep your relationship intact, but it also is a safeguard for both parties. It is always better not to have any loose ends from a legal standpoint in the future, you never know what could happen. It is also better to have a written private lender agreement for tax purposes down the road.
As you look over your Private Lender Agreement it is important to make sure that all of your i’s are dotted and your t’s are crossed, and everything is spelled out. Here are some important details not to miss.
- Due date of all of the payments.
- What are the repercussions if a payment is late or missed.
- Is there a grace period of any kind?
- What are the fees if any.
- Is there any kind of penalty for prepaying?
- How should the payments be remanded?
- What is the collateral?
When going to a private money lender, it is always important to make sure both the lender and the borrower is covered. The terms should be cut and dry, all of the details lined out in the agreement. A private lender agreement is necessary when taking out your hard money or private money loans for your investment.