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Capital Channels For Hard Money Lenders

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Shaye Wali and Zach Cohen

April 26, 2023

Whether you’re a hard money lender that is just starting out or an established player raising capital to scale your business, it’s important to know the capital channels available to you. This post will provide an informative overview of the various channels you can leverage to grow your hard money lending business.

Private Investors

A common source of funding for hard money lenders are private investors. These can be friends, family members, or other high net worth individuals who are willing to invest in your business. Private investors can be a great source of capital because they are often more flexible than any other source of capital, and they may be more willing to take on risk in exchange for a better return.

Institutional Investors

These are entities such as family offices, hedge funds, and insurance companies. Institutional capital can provide a lot of capital quickly. They often have deep expertise and experience in evaluating investment opportunities, particularly ones that fall under the alternative investments category. However, institutional investors are also more risk-averse, and they may require more due diligence before they will invest in your deals, which is not always practical.

Institutional Note Buyers

This channel is often referred to as correspondent lending. As a correspondent lender, you can establish a partnership with one or many institutional note buyers. These note buyers aggregate loans from local hard money lenders, and then sell them to institutional investors or securitize them. There are a couple of major advantages of working as a correspondent lender. First, you don’t have to worry about raising capital and can instead solely focus on developing relationships with new borrowers. Second, you can offer loan products that would otherwise not be of interest to private investors.

The Hybrid Approach

The most common structure we see with our customers at Baseline is a hybrid of private investors and institutional note buying partnerships. Under this model, hard money lenders work with a number of private investors and direct any excess deal flow to the correspondent lending channel. By leveraging these channels effectively, you can access the capital you need to scale your business.

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