Speed To Market

When opportunity knocks, cash is king. But if you don’t have a mattress stuffed with money, Direct Private Lending may be your ticket to a spot at the table.

Nathan Daly
October 16, 2020

Speed To Market

The P2P Space - Direct Private Lending

We’ve all heard the saying that it takes money to make money. But to cash in on unique opportunities, one must also be ready to move quickly - those rare, “golden” opportunities rife with rewards usually have an element of urgency to them. It is, in fact, this urgent need of cash that generally generates the best investment opportunities. So, speed to market is equally as important as cash on hand. If you need cash fast, call Acumen Finance to get started on the approval process today.

To illustrate, let’s say Bob is offered an opportunity to triple an investment of $5,000 within 30 days. If he’s smart, he’s going to do whatever he can to be a part of that action. But, the catch is that the investment opportunity is only good for today. Obviously, a deal like this will not last long; time is of the essence. Unfortunately, Bob doesn’t have $5,000 stuffed in his mattress - who does?

Securing a loan from a traditional bank may be good for private mortgage finance, but not so much for a once-in-a-lifetime investment opportunity when you need cash now, and the collateral (or lack thereof) doesn’t fit into the bank’s models. Banks are conservative by nature, with rules and regulations established to protect their deposits and adhere to sound lending practices established by governing authorities. Further, it can take the bank anywhere from 4 weeks to 3 months to review your application. And even if it meets the banks lending criteria, you may still be denied. If you’re a gambling man, you can bet that “golden opportunity” will be gone before you can line up traditional funding.

Credit Unions and Building Societies, a.k.a. Tier 2 lenders are a bit quicker and more efficient. Since lending is their primary activity, they have staffing dedicated to the review and approval of loan applications moving things along a little more quickly. They also have more flexibility in lending considerations - such as loan to value ratios and applicant credit scores. However, they too are still limited by certain rules to which they must adhere. So, if you need the cash now, you may be left in the cold, watching those precious opportunities dissipate like smoke in the wind.

Hard Cash Now

There is another alternative. If you need cash quickly to capitalise on that very special opportunity - an opportunity that will not wait - private lending or P2P lending is the solution.

Tier 3 lenders remove the bureaucracy and red tape that bind regulated lending institutions and connect the borrower to the decision-maker (the lender). The lender has the freedom and flexibility to weigh the merits of the request and determine their personal risk tolerance.

As such, the lender can set their own terms - the most obvious of which is higher interest rates but can include exit strategies and creative collateral. As the borrower, money talks and hard cash now buys you a place at the table.

The cost of a quick, hard cash loan might come at a premium in terms of a higher interest rate. But if the opportunity warrants it - i.e., offers a high rate of return on investment - it may well be worth the added expense.

Since the banks and credit unions are not interested in Bob’s get-rich-quick opportunity, his only option is to consider a private loan. Bob’s in luck because he has a friend, Carol, and he knows that she does have that type of hard cash on hand.

To incentivise Carol to direct private lending, he could offer her 20% payable in 30 days. It’s a good deal, so Carol, the smart businesswoman she is, gladly hands over the loan. At the end of the month, Carol walks away with $1,000 in profit and Bob takes home $9,000 ($14,000 - (5,000 loan + 1,000 interest)). At this rate of return, Bob really doesn’t (or shouldn’t) care that 20% interest is steep because it’s all relative to the profit margins - in fact, he could offer significantly more and still walk away with a healthy profit.

Ok, we know this example is a gross oversimplification of an investment opportunity that’s unlikely to happen. To make this more realistic, however, we need only add a couple of zeros and a bit more background:

Let’s say Bob is a land developer, and regardless of his long-standing relationship with his bank, the lender has determined that they cannot or will not extend any further credit to Bob’s company. Faced with an unexpected cash flow crisis, Bob is in desperate need of an immediate cash infusion to keep his subcontractors and employees on the job. He needs only $10 million to complete a $150 million project that is projected to realise a net profit of $95 million at the end of one year. After paying Carol 20% interest ($2m interest + 10m loan), Bob walks away with $83 million. Not bad! And in the ultra-high market value of project development and commercial mortgages, these scenarios are more likely than one might imagine.

Benefits of Direct Private/P2P Lenders

Private lending platforms are changing the way lenders and borrowers connect. Primarily because you deal directly with the lender, removing the middleman banks bound by regulations and bureaucracy and allowing the lender and borrower the flexibility to set their own terms based on the merits and technicalities of the loan. Arguably, just as important is the speed in which a private loan can be secured - sometimes within just days. Also, private lenders don’t necessarily keep bankers hours, meaning that a trusted broker/partner, such as Acumen Finance, who is connected with the right pool of high-wealth individuals and businesses is more likely to close a deal in the midst of holiday vacations and chaos than a local banker.

At the moment, private lending is perceived as somewhat of a luxury or premium option, but it has its benefits. While it can be more expensive money, we’ve demonstrated in the example above how the additional cost is worth the investment. Further, as more people and businesses are becoming aware of the potential and jumping in on this exciting new opportunity, the increased supply and demand will ultimately drive down the costs of funding making the opportunity more available to more people and, in turn, opening more lending opportunities for investors.

Matching the two parties, however, is still a job best left to the professionals who have the expertise to evaluate the details of the deal and perform the necessary due diligence. The team at Acumen Finance has a combined 38-year track record of matching borrowers to lenders. Working with a pool of high-worth individuals and businesses, Acumen Finance understands their lenders’ parameters and expectations, thus allowing them to match them to appropriate projects/borrowers. Their expert staff provides borrower due diligence, vetting borrowers for credit history and ability to repay. Once the appropriate lender is matched with the borrower, the documentation specialists create the application and credit documents formatted to Big Four standards.

With Acumen as your trusted broker, your investment connections will keep a commercial pace - your package will focus on the strengths and the technicalities of the deal, not get lost in red tape. Contact us today to get investing in this opportunity because opportunity never sleeps and only knocks once.