Private Money Lending Structure

[Eric Boshart]

Hi BP Community,

I've been lending informally for the past couple of years to family and friends on fix-and-flip deals, and I am now looking to formalize it i order to raise further capital and grow a sizable book. After reading and speaking with other lenders, I've found there are a couple of different ways these companies are structured:

1) A close-ended fund much in the nature of a PE/private credit fund, where the operator earns an asset management fee of invested capital (2%) and a servicing fee of the loans in the portfolio that the operator is actively managing (.5-1%). LP gets a 8-10% preferred return and the net-of-fee returns are split 50/50 after the fact.

2) A simple assignment agreement on a per-deal basis, where the operator provides the loan and then assigns it to the end investor, whereby the operator earns a brokering or servicing fee (the end investor earns the interest rate on the note minus a certain percentage fee, and the operator earns the rest).

I'm trying to weight he pros and cons of both, keeping in mind that I value flexibility, discretion in which deals I choose as an operator, and making it super easy for the borrower. Any advice on which fee/legal structure to go with would be much appreciated.

Thanks!