What is the Best Way to Grow as a Private Lender

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My perspective was from a small business private lender rather than RE lending, but the mechanics were largely the same. What I have seen is an internal sales team (AE's/Reps who split their time between referral partner development and managing their pipeline) combined with someone solely responsible for digital marketing (social media, SEO, ppc). This dealflow is then supplemented with deals from the broker channel.The broker channel will get leads in the door quickly, but they are usually of questionable quality and loyalty. We had to work out some metrics for how to vet and when to offload brokers because we would get spammed with trash deals or be competing with five other lenders whom the broker was pitting against one another. The dealflow from brokers is always there, but the juice vs squeeze conundrum is in full force because if you dont manage this closely, you will start soaking up tons of bandwidth and payroll with underwriting several deals for only 1 in 5-10 to actually close. Also, these deals tend to have very thin margins because the brokers will soak up a lot of the up front pricing while also pressuring you to get skinny on the rate. EPO's, PPP's, and clawbacks are critical to manage this as well. Going direct to client is the holy grail but is more difficult. Usually an originator/AE will develop referral partner relationships and rely on SOI to bring the leads in while also managing their pipeline. The mortgage world also mostly runs on this model for smaller to midsize orgs. Typically AE's will be commission only or commission + a small base. Normal comp is 100-150 bps on volume for these roles if commission only and completely self-generated leads. For lender provided leads, half of this is the norm.Social media and SEO works, but you have to really niche and be strategic. Typically its the behemoths with huge marketing budgets who do well with this. There is definitely an economy of scale aspect to this. Generally what I have seen for smaller orgs (under $1B in volume) is that it's far more effective to bring in originators than to throw money at paid digital marketing. You have to really understand your funnel and market segment as well as execute extremely well for this to work.

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@Chris Seveney when I started my lending company with two partners our aim was to go from $0 to $2.5M per month. We accomplished that within a few months, and five years later we were doing well over $100 million per month before we sold the company.To get there, we hired top originators from our competitors. We not only offered them a better comp package, but we offered them the opportunity to work for people who knew real estate investing as investors, not just as lenders. That makes a real difference.Initially we had one originator, one part-time processor, and a part-time admin assistant. Within a year we had 3 or 4 originators, 2 or 3 processors, and a full-time admin assistant. After year 1 we added more originators, more processors, an appraisal review analyst, a VP of capital markets. By year 5 we had around 55 people.We did hire a marketing person but frankly marketing wasn't our strong suit. Our website was just OK, our email campaigns were hit and miss, our conference presence was fairly minimal. Nearly all of our business came from the relationships that our originators had built over the years. This doesn't come cheap--these folks were making high six to seven figures depending on volume.We focused on lending to professional real estate investors--so our customers were frequent repeat borrowers. Build and nurture those relationships. Just like any aspect of real estate investing, non-consumer lending at a large scale is a relationship business. If you don't have the relationships, hire someone who does.

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There are probably many ways to go from $12 million annually to $60 million annually. To choose the correct path for any particular business a number of questions need be answered first1. How much risk are you willing to take?2. How much capital are you able and willing to invest?3. What is the minimum amount of profitability acceptable at a $60 million loan volume4. Are you willing to change your current lending criteria?5. How limited is your knowledge base?6. How much time are you willing to devote to an expansion program7. How much larger of an organization do you want to run8. How much “control” are you willing to give up? I can tell you what we actually did. My parameters were that I did not want to add more than 2-3 employees, I did not want to give up control over the u;to are yes - no investment decision, and I didn’t want my position to become a full time job. We were successful by implementing a 3 part program1. Greatly increased lending capital by transitioning from a ‘blind pool” fund to a series LLC / syndication model where investors know the property lending deal before committing to any loan and can “pick and choose” whichever loans they do or do not want to participate in. Over 8 years this increased our capital base from $8 million to $50 million + 2. Incensed deal flow by developing a large list of contacts of commercial mortgage brokers using LinkedIn. I have 20,000 + commercial mortgage broker contacts on LinkedIn 18,000 of which have agreed to accept a monthly newsletter we email to them.3. We hired a internet marketing person whose business consists exclusively of real estate clients who redesigned our website, initiated a program of SEO and social media marketing aimed both at deal flow (real estate borrowers and mortgage brokers) and capital (passive investors).4. We lease a platform for online access and efficiency with both a lender and investor portal. This reduced time spent on mundane tasks - answering investor questions, sending out loan information, handling loan inquiries etc about 80%. 5. We rent an environmental screen database that provides us with a 24 hour turnaround environmental screen and engineer evaluation of the report. 6. Hired part time admin assistant and 1/4 time services of book keeping professional.

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@Chris Seveney While I'm not at that level to be able to provide personal experience I will follow to see what others respond with.One question I would have is, 'What is your current loan volume today?' I'd also want to know the average loan amount to determine how many more loans are needed to go from today to $5m/month. Finally, access to funds. Is that available to scale up and if there are investors, resources to manage that side if the business.I imagine a $60M/year Lending business will need systems in place and more than 1 extra person. Acquisition, processing, etc. perhaps. Obviously one would still need legal and accounting support. And your #3 touches on Marketing. I would think a significant focus on marketing to fill the funnel would be needed to keep the volume coming.Again, I can't share from experience but $60M/year isn't a one man show using Excel. Looking forward to other responses.Thanks,Steve

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during the 2000s before the crash we got up to about 3 mil a month in lower balance high profit loans and were between 30 to 40 mil out.. we originated all our own loans.. do not trust brokers all my worst deals came from them.. this took about 12 people.. Today this would be possible in high priced markets were your average loans are more in the 500k range so only 10 a month.. like CA NJ Denver and ski areas . My company now just me and two staff and we are about 20 mil in short term JV deals with higher profits and what most would think is higher risk. We have 10 to 12 borrowers all repeat. No beginners.

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This is why Brian Burke can go “large corporate” while I have to stay “small private”; he has the ability to MANAGE PEOPLE that I do not. So, that makes a BIG difference in How you scale and what your personal “upper limits” are. Well done, Brian!

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The other option I have not seen mentioned yet is finding a corespondent who can originate for you. Tricky to set up though.

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Thanks @Don Konipol, but I can’t take all the credit here. I had outstanding partners. They were great at managing people. If anything, this is a great lesson in partnerships. The right chemistry can accomplish incredible things. The wrong chemistry, well, see what happens if you put a few drops of brake fluid into dry pool chlorine (actually, do not do this!).Partner with people that bring things you do not. And you bring things they do not. Hire only “A Players”. Be prepared to spend a lot of money creating the infrastructure. Expect to put no money in your own pocket for a couple years.

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It is a very small part of their business as they own almost $90M in real estate

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How does one profitably run a PML company with numerous people only funding 10-12M a year?If they have money and can compete on pricing, brokers will be the best bet.

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