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Private Lending

Turn your self-directed IRA into a lending institution with private lending investments. This type of investment strategy gives you the freedom and flexibility to lend money from your IRA to individuals and corporations (via promissory notes), with the ability to earn interest on private loans.

Choose your terms

Control your repayment terms, interest rates, and more.

Earn tax benefits

Earn tax-free or tax-deferred income in your self-directed IRA.

Make an impact

Help support your community initiatives with investment lending.

What is Private Lending?

Think of private lending like a bank: Your IRA acts as the lending institution, with businesses and consumers acting as the account holders. People in need of a loan or financing would borrow money from your SDIRA. That means you could lend to a neighbor who wants to open an animal rescue or to a business that’s looking to expand.

As a lender, you have the power to make final decisions on the terms, rates, and whether or not it’s secured. With private investor loans, you’ll make money by the interest paid on the loan.

NAVIGATION TIP:

Beware of prohibited transaction rules that disallow lending to certain family members or any persons deemed a Fiduciary to your IRA.

Types of Private Lending

This strategy can involve different types of borrowers and investment options, depending on what you’re looking for. These are the most common types of lending.

  • Promissory notes: A written agreement or “promise” between two parties, with one (the note's issuer) agreeing to pay the other (the note's payee) a defined sum of money under specific terms. Promissory notes, also called private lending notes, allow companies and individuals to receive loans from sources outside of a bank, either as a secured or unsecured loan. Often a third party, called a loan servicer, works in conjunction with the lender and handles the loan documents, filings, and money transfers.
  • Mortgage notes: A mortgage note secures repayment of a loan by attaching a lien on a piece of property. Mortgage note investing happens between the borrower and the lender. If the borrower fails to pay, the lender must go through the court system to foreclose on the loan and either sell or obtain ownership of the property.
  • Trust deeds: Like a mortgage note, trust deeds also secure repayment of a loan by attaching a lien on a piece of property. The difference with trust deed investing is that there’s a trust involved in the process in addition to the lender and the borrower. The trustee holds onto the title of the property used as collateral, allowing lenders to bypass the court system in order to foreclose on the loan.
  • Hard money loans: Hard money is an industry term used when financing is obtained through non-bank sources. Hard money loans are the same as promissory notes. A lender gives money to a borrower under certain terms and conditions for repayment of the loan. Individuals or companies can be on either side of the transaction. Borrowers may finance an entire project with hard money loans or they may use both bank and non-bank loans.

How To Fund Private Lending Through a Self-Directed IRA

Find a borrower

Choose a qualified borrower for the loan (not a family member of any type or a fiduciary.)

Set your terms

Set the terms of the loan, including if it’s secured or unsecured, down payment, and interest rate.

Entrust Mainstar

Mainstar Trust will execute the loan on behalf of your SDIRA.

Earn interest

All borrower payments, including interest, go directly into your Mainstar Trust account.

How To Invest With Private Lending

Investors are encouraged to do adequate research or contact a broker/financial advisor, attorney or CPA to determine if private lending is an appropriate investment.

Once you have determined that private lending is suitable for you, a specific note can be purchased with your Self-Directed IRA or another retirement account at Mainstar Trust. Click here to discover how to use a Mainstar Trust account to invest in a private lending product.

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