2012 was our fourth full year in the private money/hard money lending business. Last year we originated 165 loans, making our four year total surpass 450 privately-funded loans. There are tremendous opportunities today for private money loan brokers. So how did we do it? How do you start a private lending company? We found the following disciplines helped tremendously in growing a thriving private lending brokerage.
How to become a private lender? The private lending business model is most successful when you focus locally. Most of your loans should be within 100 miles of your office. Most of your private lenders will be local to your community. If you’re wondering how to start a private lending company, you will succeed in funding loans because you are a local expert and you understand your local marketplace. Remember that a reputable private lender is really in the investment business first, and the lending business second. Invest in what you know and where you know. For example, we are Northern California-based, and we don’t spend time on most Southern California loan applications.
Find your sweet spot.
How to start a private lending company comes down to knowing your target. If the funding capacity of the majority of your investors ranges from, say, $50,000 to $250,000, then market this range as your niche. Be honest with your referral network as to your sweet spot. Besides, a guy that needs a $50K loan will not be well served by a broker who regularly funds million dollar loans–that’s not a way how to become a private lender. No, how to start a private lending company is to build your book of business by starting out small, creating volume, then working your way up to larger loans. You can earn more in fees by doing 5 – $50,000 loans than 1 – $500,000 loan or even 1 – $1 million loan! You can charge more points on smaller loans, plus the fees. They close quicker and easier. Larger loans fail to close at a much higher rate than smaller loans.
The way how to start a private lending company is not through trying to be everything to everyone. Be specific in your advertising and marketing. Don’t say that you are “nationwide” and you fund “all loan types” and loan amounts. I guarantee you that brokers who market themselves as such do not have a thriving business.
Strive for total transparency.
If you want to know how to be a private money lender, if you check out our website you will notice that we don’t have pictures of skyscrapers or smiling people in suits shaking hands. We have pictures of actual deals we have funded. We have our names, addresses, pictures and email addresses for all the world to see. We use our direct phone number with area code so people know our business is located in the San Francisco Bay Area. Google us and you will find our detailed LinkedIn profiles. We’ve never pretended to be something we weren’t. Your authenticity and transparency will attract customers to you in a big way.
Refer, don’t broker.
We originate loans. We rarely broker loans to other brokers. But we refer deals almost every day. When a call comes in for a loan that’s outside of our area, expertise or capacity, we will refer that caller to one or more brokers from our database of reputable private loan originators. That’s how to become a private lending company. Brokering, in most cases, is a waste of your focus and time. Especially if the lead is coming from another broker. You do not want to be in the middle of a daisy chain. Daisy chain deals mostly fail because the borrower does not get well served. The reason they fail is that there is no way for every agent to get paid without overcharging the borrower. The universe will reward you if you selflessly refer to other brokers those leads which don’t fit your niche. Because of the literally hundreds of leads we have referred to other lenders over the past several years, the goodwill it created has resulted in referrals coming back to us daily from people to whom we selflessly referred business months or even years ago. This is how to become a successful private lending company.
Coaching, Mentoring & Consulting.
The final step in how to become a private lending company is to learn that the best investments you can make are in yourself and your business. Success and leadership coaching are an important part of my life. The books you read, the seminars you attend and the videos you watch will help you to master the disciplines you need in order to succeed in a world full of distractions and naysayers. Attend industry conferences and seek out those who have achieved success in this business and follow their advice. Hire an industry professional to review your practices and help you achieve compliance with state and federal regulations. Conduct this business properly, and soon you will have a steady stream of new leads as you grow your local reputation for performance and thoroughness.