Finding Private Lenders and What Are They Looking For?

Question

Hello All,

My business partner and I are finding some deals that we believe are worth acting on but within these early stages of our business we do not have the initial capital to purchase. What are some strategies to finding private lenders and what kind of information or business proposal would they want to see to invest in our company and the opportunities that we may bring forward to them? Any and all help would be appreciated as we are just starting out and are working towards the goal of financial freedom! Thank you in advance!

Zach

Doug Smith · Answer

There was something in your post that I saw that needs clarification. There is "Debt" and then there is "Equity". You mentioned "invest in our company", which implies that you are seeking an equity, or ownership, investment in your business. Your headline speaks of "Private Lenders", which are debt providers that have no equity interest in your company, but make loans. Most of us lenders are looking for several things including a reasonable credit score, liquid cash in the bank to cover down payments (20%-25%) plus closing costs and reserve cash, and most importantly experience. We'll ask for a schedule of deals that you've done to make sure that you won't be flailing around lost after we provide you with the capital to move forward. We really don't want to see a written business plan in most instances, but we will need to see that you've through the deal through. We'll want to know what it's going to cost you for the property, who you're using to renovate and their information, what the specific scope of work looks like for the project, and how you've determined the ARV...As Repaired Value. If you're buying a rental, we need to know that you know what market rents are and how you came up with that number. In a nutshell, we want to make sure you're not blowing the money we give you. We need to be assured that you know what your doing, have the ability to pull it off, and that we'll get the cash outlay back on time and for what we agreed upon. I do hope that helps.

Chris Seveney · Answer

Start with some of the larger players like Kiavi etc. to see what their terms are. The biggest thing to understand is there is no such thing as 100% financing. If that is a showstopper then focus your time on saving money or bringing on equity partners. The larger players may go higher LTV whereas most of the smaller firms are typically more conservative.