Just wanted to point out that Jeff makes a very valid point as to the perception of where the money is coming from. "Private" has nothing to do with source of funds so much, as if it's money I earned selling widgets and it belongs to me personally. It's much more to the point that you are dealing with an individual who is not in the business of lending, if you're in the business of lending seeking borrowers, it's no longer a private transaction as defined by SEC or under exemptions of financing or banking laws.
Again, the terms are not legally defined but the source of money, the relationship of the parties and past dealings of the parties are defined establishing what is a privately funded transaction and what is not. Logically then if it is a privately funded loan that lender is a private lender, the other is not.
Jeff's point as to a borrower's perception is more than valid as the public sees dealing with an individual a lot less intimidating than anyone in the business of lending. They realize that Harry's Pawn shop will take their collateral if the miss the payment. They often believe that granny will let them slide a bit more and deal with them as she just wants her interest and principal (all lenders do) but there is more of a threating feeling when they are dealing with a professional lender. There is the public perception of a loan shark, a guy with money who charges high rates and will snag your collateral at the fist opportunity and cheat you out of getting it back. That's reality.
Which I'd say why that association of private lenders chose the term, to soften public perception.
Hard money lender really isn't a proper term, some state law may use the term to describe who might be regulated or define a lending practice but it's not in federal law that I know of, private lender is.
The issue of an individual who wants to be in the business using "Private Lender" is obvious, they don't want any negative connation, if any, related to Hard Money Lender and they don't want to just say Mortgage Lender as that can bring regulators snooping at the door since they are regulated. But there are unregulated mortgage lenders. Calling yourself a "Mortgage Broker" is entirely different and that's not what a individual lender loaning their money is doing and since they are regulated, don't use that name or term.
I realize the difference in perceptions as I made private loans, loans funded by private individuals who had never made a loan in their life, investors who funded loans but had no real oversight in the loan made, loans funded by individuals who were in the business of loaning their money as well as institutional money. Each of these sources of funds invoked different opinions by borrowers to some degree, you can easily read the concern or lack of it as you explain how their loan will be funded, by who and overseen. No where is it more evident than when dealing with someone suffering in some contract for deed deal needing to be refinanced or where some investor, in the business, was trying to lower the hammer on them. Jumping from the pot into the fire so to speak. However, I was in a brokerage situation, I was always in charge of servicing and devising the deal and I could overcome any of these concerns related to the source of funds or perceptions a borrower may have had.
I know too that David or Jon, or Jake or Ann or anyone else here won't be loaning money as a brokerage or individually in consumer transactions. Your loans will be on a commercial basis with investor/operators in RE, so the perception should take on a different flavor than by the general public. Even so, I'd say the more proper term might be "commercial lender". It even sounds more professional, IMO or you could say a "private commercial lender" to differentiate between sounding like a bank and an individual.
Because there are strategies in RE investing that are anchored in truly privately financed transactions, seeking money from granny, or your dentist or taking on a partner I'd think that one who was in the business of lending is not only not a private lender but is, to a degree deceiving borrowers at least initially who may be seeking a private lending/partner. They should know the difference by seeing an ad offering to make a loan, but in the case of the new investor types I can understand that oversight. But it isn't painting the truest picture of lending soliciting borrowers saying you're a private lender.
If you ever end up in court on some deal and you stand there and refer to yourself as a "private lender" I'd think any judge or attorney familiar with financing or SEC requirements, even on a basic level, will know you aren't a "private lender" not being related to the borrower in some fashion and will begin to form an opinion, not only to your true position but to your legal understandings, your professionalism, how you may have approached your borrower, how you sold your deal, that perception runs much deeper. You can't just invent what you do and justify it by having had written a personal check, that is totally irrelevant. In fact, in instances where there were legal issues I don't ever recall the source of a lender's money being mentioned outside of investor/brokerage loans. The funds are assumed to be funds of the lender's and his source of funds has no bearing on the terms of the loan, what type of loan it is or effecting any manner of default. Just saying, that's not a basis nor even an argument to make. In court, just say "I am/was the lender" and leave it at that. :)
Bill Gulley, General Real Estate Academy