Private Loan Opportunity - 150k

[Dennis Palen]

Hello everyone,

I'm a PML, and someone has reached out to me seeking the following loan opportunity. I need some feedback on what I should do.

Loan Details:

Amount requested: $150,000
Interest rate offered: 9%
Payments: Interest-only
Monthly payment: = $1,125
Term: 5 years
No prepayment penalty

Security:

Personal guarantee
Second position lien on a property in Florida
Property value approximately $300k ( 85k in equity)

Purpose of the Loan:

The funds will be used to consolidate existing debts into one structured payment, improving overall cash flow and simplifying repayment.

Why This Works:

Predictable monthly payments
Strong incentive to refinance once equity increases
Long-term property ownership provides additional stability

[Jeff S.]

If the property is worth $300K and there is $85K in equity, the first-position loan must be $215K. Adding your $150K loan, the borrower will owe $365K on a property worth $300K. Thus, they would owe more than the property is worth and without enough equity to pay you back. What would keep them from walking away? Further, if something goes wrong, you will not be able to foreclose without taking money out of your pocket to pay the first-position lender off.

I’m not sure what you mean by, “The funds will be used to consolidate existing debts into one structured payment.” If the debts being consolidated are personal debts, unless you are licensed to make consumer-purpose loans, you can’t make this loan no matter how good the deal. As you know, because you are a PML, use of the funds is the first question you should ask. They must be for a business purpose.

Last, as a PML, you should be stating the terms of your loan, not your borrower. Typical 1st position private loans now are in the ballpark of 11% plus a few points for a 6-month to one-year loan. Licensing aside, an underwater 2nd position loan, at 9% for 5 years, is not something you should even consider.