As an individual looking to operate successfully in the private lending business in the state of California, it is crucial to be well informed about the necessary licenses required by the state before one can commence operation. The two primary licenses needed to commence the operation of a Lending business are The California Department of Real Estate (DRE), which issues a real estate broker’s license (“DRE license”), and the California Department of Financial Protection and Innovation, which issues a California Finance Lenders License (CFLL) (DFPI).
A DRE license is a special license that enables its holder to perform various activities in the real estate sector, such as arranging and selling loans to the public, but with significant challenges to transactional restrictions. In comparison, a CFLL is restricted in its capabilities but quite flexible with few transactional restrictions. To obtain a DRE, Formal education, previous experience, and a background check are all required. Meanwhile, a CFLL only requires a $25,000 Net worth and a $25,000 Surety Bond with a bit of background check for its issuance.
Both DRE and CFLL are generally widely utilized by lenders and brokers since their benefits are not mutually exclusive. Some lenders retain both licenses to maintain their leadership position in the market, while some could only avail one due to one thing or the other. Nonetheless, both licenses have their benefits.
DRE, for instance, provides a larger toolkit for lenders and brokers. Holders can broker and fund loans secured by real estate, arrange the sale of loans to third parties, and invest in loans secured by real property. On the other hand, CFLL permits lenders to lend only from their balance sheet and generally buy and sell loans.
Both Licenses have their unique benefits with considerable differences between them. However, having both could serve as a stronghold for a lender as you get freed of unnecessary regulations now and again. To read more on the differences between the two licenses and their benefits, click here.
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