Why Small Loans Are Harder to Get than Large Loans

In the private money lending world, originating small sized loans is known to be a pesky endeavor. Small loans are typically classified as any loan amount under $50,000. For example, many bridge lenders won’t even make loans under $100,000. So why are small loans so hard to get?

One reason that small loans are hard to get is because it takes nearly the same amount of effort to do a small loan as it takes to do a large loan. And because of the manner by which mortgage brokers and lenders are compensated, (e.g. as a percentage of the loan amount), the larger the loan size the larger the compensation. For this reason, many brokers and lenders will not spend their time on smaller-sized loans and this limits the number of small loans available in the market.

Another reason that small loans are harder to get than larger loans is because often they are loans used for a consumer purpose, such as paying off credit card debt or medical bills. Under new consumer financial protection laws, many lenders have left the consumer-lending scene and are no longer making small sized, consumer loans. Fortunately the appearance of peer-to-peer lending platforms in recent years, particularly those that lend to consumers, has created a new source of small consumer loans. Only time will tell how the P2P space will shake out but for now it has created an outlet for small sized, consumer loans.

Posted by Corey Dutton, Private Money Lender