Collaborating with private lenders can put you ahead of the pack

Bret L. Berglund, president and principal, Western Capital Partners LLC

As published in Scotsman Guide's Commercial Edition, October 2005.

Before working with private lenders, you should understand how to expand the types of deals you can fund with them and what you need on each proposed deal to spend the least amount of time with the highest probability of success. Making yourself a partner in the private-lending process may require adding a little more of your creativity and energy upfront, but you should be rewarded with larger commissions and happier customers in the end.

What is a private lender?
Private lenders are a vibrant and integral part of the commercial real estate financing landscape. Many past perceptions about hard-money lenders no longer apply.

Being privately funded and retaining loans in their own portfolios affords private lenders greater flexibility than more-conventional lending institutions. Accordingly, these lenders can often move more quickly and consider loans that do not meet traditional lending parameters. Hard-money lenders tend to be short-term and asset-based, with less emphasis on borrowers’ credit and financial condition.

Partnering with a private lender does not mean that you are actually partners, but it does mean that you are working as a team and share the same goal of getting loans funded. This collaboration can be called a value-added partnership. As on any team, greater understanding and cooperation means a greater chance of success.

By taking initiative and following some basic steps, you will be able to gain a competitive edge and set yourself apart from other brokers in the commercial-lending field. There are four keys to becoming a value-added partner in the private lending process: 1. understanding how private lenders underwrite; 2. prescreening potential loan opportunities; 3. targeting your loan presentation; and 4. selecting the right lender.

Understanding how private lenders underwrite
Thinking like a private lender is one of the best ways to ensure your success. If you understand how the lender will look at your loan request, you will be able to structure your proposal so that you can get the quickest feedback and ultimately, get your loan request approved.

Because private lenders are most concerned with the asset, they will probably be skeptical about simply taking appraisals at face value. Most hard-money lenders perform considerably more due diligence before determining what they believe to be the collateral asset’s value. Although the valuation approach varies among lenders, it is fair to say that the sold-comparables and other third-party sources of information, as well as a lender’s judgment, are going to receive greater consideration than the borrower’s estimate of value.

When considering your credit request, private lenders typically use a formal or informal evaluation matrix based on their credit policies. The relative weight of each factor that impacts the loan is determined by each lender individually. Almost all lenders will evaluate the collateral, the borrower and the overall market.

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