A lender is any institution or individual who loans a borrower money. There are a number of types of lending organizations, including educational, commercial, hard money, lenders of last resort, and mutual organizations. The most traditional type is a commercial lender, which is often a banking institution, though it may also be a private financial group. This type makes an offer to the borrower of certain terms, including interest rate and length of loan, with the goal of maximizing their profit in relation to the borrower's risk of defaulting on the loan.
Often, a loan is brokered, meaning that the borrower is evaluated by a third-party who then proposes the loan request to a number of different lenders. These organizations are chosen based on their likelihood of accepting the particular borrower, and may negotiate small changes in the terms to attract the borrower if they find her desirable.
A hard money lender specializes in short-term loans that are backed primarily with real estate as collateral. In general, it offers worse rates than a traditional banking organization in exchange for more flexible terms and a broader range of deals they are willing to back. In some states within the US, they are forced to operate differently than they do in the country as a whole, because of conflicts between their standard practices and those states' usury laws.
A mutual organization is a financial cooperative operating to lend money to its members. The constituents put money into a collective, where it may then be disbursed to members in need of loans at amiable rates and with good terms. By eliminating the need to turn a profit, mutual organizations are able to give higher interest rates on deposits and lower rates on loans than traditional banking organizations. These groups include community credit unions and friendly societies.
A lender of last resort focuses on protecting a country's national economy from collapse. It will lend to banking institutions on the edge of collapse in order to protect their depositors and to stop total panic from pushing the economy quickly downhill.
This term has also come to refer to private institutions that give loans to people with a very low credit score or an otherwise extremely high risk of default. This type of lender offers loans at very high interest rates as a way of covering losses from the high default rate they experience with their borrowers. It may also refer clients to a loan shark, offering loans at even higher interest rates for virtually any purpose.
