The private lending landscape is coming into its own as a popular alternative to loans from banks and other traditional lenders who follow strict regulations for borrowers and loan qualifications. Private lenders are tasked with the challenge of determining their own regulations for borrowers and loan terms.

At the onset of 2017, many online real-estate based lenders are anticipating a potential correction in the real estate market. Thanks to new regulations instated after the real estate crash in 2008, lenders aren’t predicting a downturn of devastating proportions. However, with real estate being a leading asset in the private lending market, consumers may want to consider the appropriate strategy for real estate investing if the values do take a downward turn.

A DIFFERENT MINDSET

While many lenders may focus on large-scale market trends, IRA investors can operate in a somewhat different mindset (depending on their individual situation). Self-directed IRAs are the fastest growing sector in the retirement industry. A new focus on private lending with retirement plans has created the desire for more ways for IRAs to invest in loans. Consequently, the desire for information about IRA investing strategies is high.

Just as it is advantageous for IRA providers to educate their clients about the benefits and regulations of retirement investing, investor education and due diligence is key while online marketplace lenders forge business models that are more sustainable and compliant with emerging regulations.

The present landscape for private lending is a little like the advent of cable TV: It’s no longer just three channels – every viewer interest has a dedicated channel. The same can be said with private lending – borrowers are not confined to three or four banks. The lending market is flooded with borrowers who want loans for a variety of purposes.

THE MORE INFORMATION, THE BETTER

Both lenders and borrowers can benefit from online lending platforms that offer investor information about the assets they provide. This way investors can understand how their money is going to be lent out, and borrowers can choose a loan with terms and underwriting criteria that work for them. Concerning IRA loans, it may be advantageous for IRA lenders to choose an account provider that offers educational materials and continuing education classes to fill any knowledge gaps.

IRA holders have many different strategies available to their accounts. They can take a personal route and lend IRA money to a borrower who is close to them and who either doesn’t want to borrow from banks or isn’t qualified to do so. For example, if an IRA investor’s sister is looking to remodel her home and needs a loan to complete the project, the account holder can originate a note with his or her IRA and provide the cash. The IRA lender controls the terms of the note, including timeframe and interest rate.

OPTIONS ABOUND

Another option for IRA lenders is to become involved with a local lending group, or create an alliance with other lenders to joint-fund a project or initiative. If, for instance, a solar energy enterprise is looking for investors, IRA holders can team up with other investors to support the startup.

Within the swiftly growing online lending platform arena, IRA holders can participate in fractional or whole loans. IRA holders can agree to have their money deployed to automatic loans through the platform, or can choose loans that require approval and input from them.

Both private lending and IRA investing are rapidly growing markets that will predictably become further wedded in 2017.

Clay Malcolm‘s article originally appeared in Private Lender magazine: January/February 2017