In this guide, I’ll explain why real estate investors or mortgage brokers should care about private lending trade associations when seeking or dealing with private lending companies, which are also known as hard money lenders or bridge lenders.
If you’re a real estate investor or a mortgage broker seeking private financing for a real estate deal, the reason you should care about private lending trade associations is accountability. When a private lender or a private lending company is a member of a trade association, it’s a good indicator that they are a reputable lender. It’s not guaranteed, but if you experience any unethical behavior when dealing with a private lender, you can report it to the trade association and be assured that the matter will be investigated. Every association has a code of ethics which is required by all members to abide by. Unethical behavior by one private lender jeopardizes the reputation of our industry, and the other members of the association won’t tolerate it.
If you’re the victim of unethical private lending practices such as bait & switch or exorbitant upfront fees without performance, you won’t get any legal recourse from a trade association. All the association can do is terminate a lender’s membership, if they determine the lender has violated their code of ethics. Before doing business with a private lender, you may need to do a bit more due diligence. Some lenders’ websites state that they are a member of a trade association, but you have to verify that. All the private lending trade associations have a public member directory which you can use to verify a lender’s membership.
Take a few minutes to confirm that the lender is in fact an active member of the association. If a lender states that they are a member but they’re not, that’s a bad sign. They are either misleading the public, or it could be that they used to be a member and forgot to update their website. Ask why they are no longer a member. Perhaps they didn’t want to continue paying the membership dues. Or perhaps their membership was terminated.
Being involved in 3 private lending trade associations, I can say that member termination or suspension is quite rare. The truly unethical shady lenders won’t make an attempt to join a trade association. That said, there are lots of ethical reputable private lenders throughout the country, including several listed on our platform, who have not yet joined a trade association.
The 4 Private Lending Trade Associations
There are four trade associations which serve the interest of private mortgage lenders, which you may commonly refer to as hard money lenders. Private money, hard money, bridge money, is all generally the same thing – short-term loans secured by investment real estate. All the associations and most private lenders don’t like the term “hard money” for obvious reasons. Some lenders embrace the term, and it’s been the more popular term for our industry in the past. When you’re looking up the trade associations, you likely won’t see the term “hard money” mentioned anywhere.
The 2 National Associations
American Association of Private Lenders (AAPL)
AAPL has the largest membership base in our industry. The organization was formed in 2010 and has hundreds of members. They have a diligent staff and an Ethics Committee to ensure accountability among their members. The membership dues are much lower than the other associations, and it’s fairly easy to become a member.
National Private Lenders Association (NPLA)
The NPLA was established in 2019 and has 130 members (85 companies) as of September 2023. The membership dues are much higher than the other associations, but that keeps the group more exclusive, and the higher dues affords them more staff and resources to operate than the other associations. New members have to be vouched for by at least 2 existing members, and they have an Ethics Committee to enforce their code of ethics.
The 2 Regional Associations
The next 2 associations are focused on states which have a lot of regulations when it comes to private lending and mortgage lending in general.
California Mortgage Association (CMA)
CMA was established in 1999 and has around 250 members as of September 2023. This association has a major focus on education to ensure that its members are operating in compliance with California real estate laws. New members have to undergo a reputation check and get approved by the board of directors. Even though the name of the organization doesn’t include the term “private lender,” it is 100% focused on private mortgage lending.
Arizona Private Lender Association (APLA)
I’m not involved in the APLA and don’t know much about it at this time. However, a few of our lender clients are members, and I heard it’s a small group where everyone knows each other quite well. Similar to California, Arizona requires a license in order to originate loans. This adds an extra layer of consumer protection since private lenders in these 2 states are less likely to jeopardize their license.
Resource to Find Reputable Lenders
Protecting our industry’s reputation is just one of the many great things that associations do for their members. It’s not just for lenders. Lots of brokers, capital providers, industry service providers, and even real estate investors are members of these organizations. So use the associations as a tool when you’re searching for a private lender to fund your deal. You can find a list of lenders on the association websites, but you likely won’t find much information about each individual or company.
If you’d like another resource to find direct private lending companies, try Private Lender Link. All the companies listed on our platform have a very detailed profile that shows their lending guidelines, rates, fees, funded deals, and more. You can even see which trade associations the lenders are affiliated with. There are two options for using our platform.
Option 1: Browse Lenders
Search on our site for direct lenders. All lenders have a very detailed profile with information about their lending guidelines, rates, fees and much more. Make contact with each out directly by email, phone call, or visit their websites. First select a loan type, then enter the state where the property is located.
Option 2: Create a Loan Request
Fill out a questionnaire with information about your financing needs. You can then browse lenders and invite a few of them to view your deal. Or ask us for recommendations; we’ll review it and invite a few select lenders that we feel may be a good fit.