Due diligence guide · Private lending
How to vet a private lender before you wire money
Private lending moves fast — but fast is exactly when mistakes happen. This guide covers the five checks that protect your capital before you commit to any lender.
Why due diligence matters in private lending
The U.S. private lending market comprised 13,631 active lenders originating approximately $125.6 billion in loans through October 2025 — an 11% year-over-year increase, according to Forecasa. With that volume comes significant opportunity and meaningful risk from unverified or fraudulent operators.
Private lending operates largely outside federally regulated banking channels. There is no universal “private lender license,” and state rules vary dramatically. The American Association of Private Lenders (AAPL) warns that this regulatory patchwork makes borrowers vulnerable to impersonators and predatory operators who collect upfront fees and disappear.
According to the FBI’s Internet Crime Complaint Center, real estate wire and lending fraud resulted in over $446 million in losses in 2023. A single bad deal can tie up your capital for months, damage broker relationships, and cost far more than the loan ever would have.
The good news: most fraud is preventable. Lenders with genuine track records have nothing to hide. The five checks below — applied consistently before every new lender relationship — are the same due diligence used by experienced syndicators and institutional borrowers.
Source: Forecasa Private Lending Market Overview 2025 · AAPL Industry Report · FBI IC3 2023
5 things to check before signing a term sheet
1. Verified track record of closed deals
Ask the lender for a list of recently closed transactions: loan amounts, property types, states, and borrower contacts willing to serve as references. Any lender with a genuine operating history will provide this readily.
Experienced investors go further and ask for deal reviews from independent sources. According to LenderLedger data across verified profiles, lenders with 5 or more independently verified deal reviews have a default rate approximately 60% lower than profiles with no reviews — because fraudulent operators cannot manufacture a genuine review trail.
Red flag: a lender who can only point to their own website as evidence of past deals. Legitimate lenders have real borrowers who will vouch for them.
2. Real borrower reviews — not testimonials
Testimonials on a lender’s own website are unverified and self-selected. What you need are deal reviews from real counterparties on independent platforms — reviews that describe specific deal conduct, draw speed, communication, and whether the lender delivered on the term sheet.
LenderLedger only publishes reviews from participants with a verified deal connection. Lenders cannot pay to boost their rating or remove negative feedback. This is how professional due diligence works: primary-source verification, not curated marketing copy.
3. Licensing and entity verification
Many states require private lenders making residential mortgage loans to hold a state mortgage lender license. Check NMLS Consumer Access for license status. For commercial lenders, verify the business entity registration with the state secretary of state — confirm the company is active, not dissolved or suspended.
According to the Consumer Financial Protection Bureau, borrowers should always verify a lender’s license status before entering any loan agreement. LendLedger cross-references every listed lender against the NMLS Consumer Access database as part of the verification process.
Source: NMLS Consumer Access · CFPB Borrower Verification Guide
4. Loan terms transparency
Before signing anything, obtain a written term sheet that clearly states: interest rate, origination points, LTV or ARV cap, loan term, prepayment penalty, extension options and fees, draw schedule (for rehab loans), and all other fees.
According to AAPL’s 2024 industry survey, the median origination fee among U.S. private lenders is 2 points, with rates of 8–15% per annum. Any quote dramatically outside these ranges warrants extra scrutiny — too-good rates often precede bait-and-switch terms at closing.
Red flag: lenders who add fees, change rates, or modify terms after you’ve signed a letter of intent. Fee creep at closing is one of the most common complaints in private lending.
5. Communication responsiveness
Call the lender before you submit a deal package. How quickly do they answer? Are they able to give direct, clear answers about their loan program? Do they have a dedicated loan officer assigned to your deal, or are you cycling through a call center?
Communication quality before a loan is almost always a preview of communication quality during a loan — when draw approvals, extensions, and problem resolution depend on your lender actually picking up the phone.
According to LenderLedger deal review data, slow draw release and poor communication are the two most cited complaints in 1–2 star lender reviews, while responsiveness is the most cited driver of 5-star reviews.
How LenderLedger solves the verification problem
1,200+
Verified Lenders
4,800+
Deal Reviews
$2.1B+
Funded Loans Tracked
47
States Covered
LenderLedger is a verified two-sided directory for private lenders, operators, and brokers. Every profile that earns the Verified badge has gone through a structured review: legal entity confirmation, operating history check, license verification in applicable states, and moderated deal reviews from real counterparties.
Lenders cannot pay to boost their rating or remove negative feedback. Reviews come only from participants with a verified deal connection. The result is a directory where the verification work is already done — so you spend your time evaluating loan programs, not chasing down lender credentials.
“The biggest mistake real estate investors make is wiring money to a lender they haven’t verified. A real track record — real deals, real reviews from real borrowers — is the only check that matters.”
Frequently asked questions
What is a private lender directory?
A private lender directory is a searchable database of verified private lending professionals including hard money lenders, bridge lenders, and operators. LenderLedger's directory includes 1,200+ verified profiles with deal reviews and track records, so you can vet lenders before you wire money.
How do I know if a private lender is legitimate?
Verify the lender's business entity registration with your state secretary of state. Check their license status through NMLS Consumer Access (nmlsconsumeraccess.org) if they originate in licensed states. Look for independently verified deal reviews from real borrowers — not just testimonials on their own website. Membership in the American Association of Private Lenders (AAPL) or NPLA is a positive signal. LenderLedger cross-checks all of these before awarding a Verified badge.
What is a hard money lender?
A hard money lender is a private individual or company that makes short-term, asset-based real estate loans — typically 6–24 months — secured by the property rather than the borrower's credit score. Hard money loans carry rates of 8–15% and origination fees of 1–5 points, according to AAPL. They close in 3–14 days and are commonly used for fix-and-flip, bridge, and construction deals.
What red flags should I look for when vetting a private lender?
Key red flags include: requiring upfront fees before a loan commitment, no verifiable track record of closed deals, inability to provide references from recent borrowers, unlicensed operation in states that require a mortgage license, terms that change after you sign a letter of intent, and difficulty reaching the lender by phone. Any lender who pressures you to wire money without a signed loan agreement is a serious risk.
Do private lenders need to be licensed?
Licensing requirements vary by state. Many states require private lenders making residential mortgage loans to hold a state mortgage lender license. Some states — like California, Florida, and New York — have strict licensing regimes. Others have limited requirements for commercial-only lenders. Always check NMLS Consumer Access and your state's financial regulator website before proceeding. LenderLedger curators flag licensing status on every verified profile.
How long does it take to close a private loan?
Most private real estate loans close in 7–21 business days from application, according to AAPL industry data. Hard money lenders with in-house underwriting can close in as few as 3–5 business days on straightforward residential deals. Bridge loans on complex commercial properties may take 2–4 weeks. Always confirm timeline expectations in writing before signing a term sheet.
Sources & references
- American Association of Private Lenders (AAPL) — aaplonline.com
- Forecasa Private Lending Market Overview 2025 — forecasa.com
- NMLS Consumer Access — nmlsconsumeraccess.org
- Consumer Financial Protection Bureau (CFPB) — consumerfinance.gov
- FBI Internet Crime Complaint Center (IC3) 2023 Annual Report
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