Be the Bank: Lend from Your IRA By Kristi Hobbs, Business Development Associate

Recently, many investors have entered the private lending space. This could be due to recent legislation seeking to expand the availability of private lending opportunities. This could also be a result of limited access to traditional financing following the 2008-09 mortgage lending crisis. As banks have become more restrictive in their lending practices, the demand and need for private lending and other alternative financing options has dramatically increased.

Unfortunately, many investors aren't utilizing the power of a Self-Directed IRA to loan money with a tax-advantaged retirement account. A Self-Directed IRA gives you, the retirement investor, the option to loan money from your retirement account. Your Self-Directed IRA can help you become the bank.

Instead of relying on a credit score to qualify for a loan, interested borrowers would negotiate directly with prospective individual lenders. As a private lending investor, you have the freedom to choose the borrower, loan amount and length, interest rate and payment frequency. For savvy investors, that makes for a compelling investment cocktail.

IRAs can hold both secured and unsecured loans, oftentimes in the form of promissory notes. A promissory note is a signed document in which a lender agrees to provide a principle sum of money to a borrower. In exchange, the borrower agrees to pay a determined sum of money to the lender under specific repayment terms. Those terms usually include the principle, interest amounts, the parties, maturity date and so on. The Self-Directed IRA holder or a third party servicing agent must collect the principle and interest due on behalf of the IRA.

Secured loans are backed by collateral to help ensure repayment of the loan amount plus interest. Unsecured loans are not backed by collateral and are considered higher risk investments. Unsecured loans are typically offered at higher rates than secured loans and tend to have lower borrowing amounts.

No matter the investment, I encourage you to consider your options when it comes to investing using tax-advantaged funds. Whether it's private lending or another alternative investment, we'd love to speak with you on how you might open a new account or add new assets to your current holdings.

"The major fortunes in America have been made in land." John D Rockefeller