Private lending has long been a sound way to earn passive income all year round. Private lenders make a range of markets accessible and profitable for people in many different circumstances. This is only one of the reasons borrowers continue to look to private lenders for loans, just as often as they do banks.
But, if you’re already acting as a private lender, profit progression in this area can get a little tiresome. After all, there are only so many deals that are financially viable at any one time for you, and your employees (if you’re already established enough to have them). So, how do you maximize profit as a private lender?
Partnering with another private lender comes with a huge range of advantages for your loan service. The ability to make bigger and better deals is an excellent way to quickly up your monthly returns, without adding any extra labor into the lending process. In this post, we’ll take a closer look at the benefits of partnering with other private lenders, and how this simple move can solidify your private loans as the best choice for borrowers.
Two Heads Are Always Better Than One
Creating a partnership in any industry is a popular move. Each side can combine their resources and experience to create a better business, with a stronger standing in their sector. This means the new company can:
- Benefit from low start-up costs and times, as the hard work has already been done by the component businesses
- Solve problems efficiently with increased expertise
- Streamline processes with a combined workforce
- Take advantage of split income opportunities to save on taxes
- Go after bigger accomplishments that were previously inaccessible to the two, or more, smaller businesses
- Return to individual ownership quickly and easily
These benefits are all available to private lenders looking to enter into a partnership. In the case of private lending, your resources tend to be the amount of capital you have available to lend. More partners mean more money available to lend, allowing for larger deals and the potential for more profit. For many lenders, this is the main benefit of partnerships in private lending. However, this is barely scratching the surface…
How Will Partnering with Other Private Lenders Attract Customers?
In 2022, many industries will be more profitable than they have ever been before. Though, getting the funds needed to invest in these sectors can be a long, stressful experience, with no guarantees. For borrowers, the ability to quickly agree on mutually beneficial terms, with few binding requirements, is an attractive draw to private lending. For lenders, however, the most profitable deals will come from attracting high-value borrowers. Let’s take a look at how private lending partners can assist you in this area.
- New Contacts
Partnerships between private lenders provide you with a variety of ways to close new, improved deals. In particular, partnering with other lenders at different stages of their private lending careers will allow you access to their trusted borrowers. This means you can get your name out there, and start negotiating bigger deals with long-term customers, on behalf of your partnership. This is not the only way that private lending partnerships attract better borrowers, though…
- A Strong Brand
Consolidated branding is one of the best, but least talked about, benefits of a partnership in the private lending sphere. Simply by advertising your partnership with other lenders, you show potential customers that you have everything they need to stay away from public loans at the bank. A partnership, and the combined experience it offers, brand your lenders as trustworthy, and with an increased experience and professionalism. If you have created a partnership between private lenders, customers know that you take this business seriously, and will strive to impress them.
- Ease of Marketing
A strong brand creates a symbiosis between branding and marketing for your private lending partnership. Partnering with other lenders doesn’t just benefit your deals, it benefits the customer too. In this way, the strengthened and reliable lending brand a partnership offers also leads to ease of advertising. This means you can target more and bigger borrowers, and make better deals in a range of markets.
How Will Private Lending Partnerships Affect Your Deals?
Partnering with other private lenders gives you more capital available to lend, and a fresh and professional brand. But these benefits are still quite general, so how will a partnership affect your deals day to day? There are many subtle benefits to your lending deals that a partnership can offer, that will help push your private loans service toward success.
Of course, each of your partners will offer you their own unique experiences in private lending, as well as their contacts that you can take advantage of. Your combined power will have an effect on every loan you clear, and these are just some of the ways your deals will improve:
Potential - If you’ve previously only felt comfortable lending in industries you have experience in yourself, a partnership with a lender in a different industry will help you gain valuable awareness of other sectors. This means you can seek investment opportunities and offer loans in areas you may not have been able to before. This means you can take advantage of heightened profits. To add to this, you’ll also be able to alter the kinds of contracts and deals you offer. For example, if you usually lend for investment in residential real estate, why not branch out into commercial real estate, or fix and flip?
Flexibility - When working with a private lending partnership, customers have access to a range of resources that they wouldn’t otherwise, especially not at traditional lending institutions. You should take full advantage of the personal nature of private lending deals, by providing customers with advice, and talking them through each part of their potential loan. This means you can work with your borrowers to shape bespoke deals that benefit you both and make sure they feel valued and protected.
Affordability - A lot of borrowers quickly disregard private lending as more expensive than loans from a bank. However, without all the necessary administration that banks must perform to provide borrowers with loans, private lending is surprisingly affordable. A partnership with other private lenders will allow you to capitalize on this, by giving you the ability to stay ahead of the loan market. This means you can price incredibly competitively, and attract a range of customers in need of different loans.
Security - No private lender worth their weight will encourage lending to risky borrowers. However, investing in potentially profitable assets often comes with a relative deal of risk attached. In this way, a partnership between private lenders works to provide you with increased financial security. Having the resources and experience of your lending partners behind you will allow your partnership as a whole to have bigger wins. Should something go wrong, a partnership can work to resolve issues together. This is far better than tackling problems alone, with no assistance or bailout in sight.
What to Look Out for When Selecting Private Lending Partners…
When choosing a partner for your private lending business, there are a few things you might want to consider beforehand. A great first question to ask yourself is, do you want to consolidate your position in your current loan market, or branch out into new and unexplored areas with potential for increased profits? If the first option suits you more, you’ll likely benefit most from a lending partner with a similar background to your own. Alternatively, if you want to try something new and expand your private lending offerings, a lending partner with different experiences from yours will be a great help.
If you want to progress as a private lender in your own right, while also benefiting from a partnership, opting for a partner who has more experience, and is willing to mentor you, is a sound choice. In this case, you should find out what makes your lending services attractive as a potential partner to other, more experienced, investors. This will benefit your individual brand and your partnership as a whole. Or, perhaps you want to take on a mentor role and build a longstanding partnership, by offering your experience to a partner who has been in the lending game for a shorter time than you.
Once you’ve chosen your private lending partners, the majority of potential pitfalls to avoid will come during the merging stage. This will require the most planning, to make sure everything goes smoothly. You’ll need to bring your financial resources, and personnel together, and decide how you are going to utilize each of these during your partnership. You should also make sure that you and your partner(s) decide on processes that work for each of you, and are in line with your existing systems. These will be things such as the potential for remote and distance working, who will handle which parts of the vetting and lending processes, how you will record, store, and communicate data, how often you and the other lenders will meet, and whether you will you hire an accountant or take control of book-keeping yourself.
The Bottom Line
If your private loan service has stagnated in terms of profits, seeking out partnerships can be a great way to breathe new life into your deals. With increased financial backing, you’ll be able to attract customers looking to make the most of a range of investment opportunities. You’ll also be able to build up your branding, increase the quality of your marketing efforts, and get an introduction to many different areas of private lending. When your partnership has helped you fulfill your goals, you can stick with it, or easily return to solo private lending and put everything you’ve learned into practice.
Sources
- https://www.business.tas.gov.au/manage_a_business/tax/choosing_a_business_structure/partnership_advantages_and_disadvantages
- https://www.fortunebuilders.com/becoming-private-money-lender-part-1/
- https://www.linkedin.com/pulse/benefits-partnering-hard-money-lender-2021-private-financing
- https://garnaco.net/blog/2020/05/13/private-lending-101-complete-guide-to-private-money-lending/
- https://lendsimpli.com/8-advantages-of-hiring-a-private-lender/
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