Five mistakes borrowers make when seeking private capital
Private credit can move quickly, but only when the borrower is ready. These are the five mistakes we see most often, and each one adds time and cost to a transaction.
1. Starting too late
The best time to talk to a private lender is when the bank first hesitates, not the week before closing. Appraisals, environmental reports and legal work all take time, and a rushed file costs more than a prepared one.
2. Treating the appraisal as a formality
Value drives everything in a secured loan. An appraisal that is stale, from the wrong type of appraiser or based on optimistic assumptions will be challenged, and the loan amount will follow the lender’s view of value, not the borrower’s.
3. Not having an exit
A private loan is a bridge to somewhere. Borrowers who cannot explain how and when the loan will be repaid will find the process slow and the terms cautious. A credible exit, with dates and names attached, is the strongest thing a borrower can bring to the table.
4. Hiding the hard parts
A CRA balance, a dispute with a partner or a difficult year will be found in due diligence. Disclosing it on day one lets the lender structure around it. Discovering it on day twenty often ends the deal.
5. Shopping the deal to everyone
Sending a file to ten lenders at once signals that the borrower has not chosen a partner and creates confusion over appraisals and commitments. Choose one or two lenders whose mandate fits the deal and work with them properly.
This article is general information, not financial, legal or tax advice. Consult your own advisors before acting on it.
