Three keys—experience level of originators, compensation, and office structure—empower you to build a powerhouse private lending team.

In the world of private lending, success is often synonymous with the strength and cohesion of your team. The choices you make regarding the experience level of originators, your compensation models, and the structure of your office environment (i.e., in-office/remote/hybrid) can significantly impact your team’s performance.

Let’s dive into how each one provides an opportunity to create a powerhouse private lender team.

The Experience Dilemma: New Talent vs. Seasoned Professionals

Originators are the “hunters” of any lending organization. They bear the responsibility of finding, building, and nurturing client relationships to generate revenue. The pressure can mount, because the success of a lender often hinges on the originators. Originators also play a crucial role in assessing risks and structuring deals that align with the needs and objectives of the organization.

When it comes to building an origination team, you have many factors to consider. One is whether to hire new originators or experienced ones. There are advantages and considerations associated with both approaches.

It can be said that all originators should focus on two things: building a database with new customers and nurturing that database once they’ve built it. If you believe this to be true, you likely subscribe to the idea of hiring an experienced originator who already has an existing book of business; however, there is a strong argument to be made for hiring high-quality individuals, even those with little-to-no experience, and teaching them your best practices.

Embracing the Fresh Perspective of New Originators. Welcoming new originators into your private lender team injects a burst of innovation and fresh perspectives. These motivated professionals often come with creative solutions and the enthusiasm to tackle challenges in novel ways. Their adaptability to technology and willingness to learn can be assets in an industry that is rapidly changing, and there is something powerful to be said for starting fresh and not having to “unlearn” old ways of doing things. However, the cost of hiring and training new talent shouldn’t overshadow the value they bring to the table.

Today in lending it is rare for companies to invest in building tomorrow’s origination professionals, but there is much truth to be had for the return on investment for developing new talent in-house. With the proper dedication of time and resources, including mentorship pairing, you can teach a rewarding career in lending and real estate. Investing in a training program ensures that the originators’ potential is maximized, allowing them to grow into valuable assets for your organization.

Leveraging the Wisdom of Seasoned Originators. On the flip side, experienced originators bring a wealth of industry knowledge and expertise. Having navigated various market conditions, they understand the intricacies of deal structuring, risk assessment, and market trends. Their established networks can open doors to new opportunities and enhance your private lending operation’s credibility.

Although experienced professionals may command higher salaries, the reduced learning curve and immediate impact they can make on your team’s performance often justifies the investment. Striking a balance between new talent and seasoned professionals can create a well-rounded and powerful origination team.

Finding the Right Balance. Ideally, origination teams include both new and experienced originators. This balance ensures the team benefits from the innovation and cost-effectiveness of new talent while capitalizing on the industry knowledge and networks experienced professionals bring to the table.

Compensation: Navigating Rev Share vs. BPS on Volume

Whether your originators are seasoned or green, your compensation structures play a pivotal role in shaping the foundation of your team. Two prevalent compensation models in the private lending industry are revenue sharing (rev share) and basis points (BPS) on volume.

Revenue sharing. Revenue sharing fosters a collaborative environment where the success of the team is directly tied to the success of the company. This is a collaborative approach in which originators receive a percentage of the revenue generated from the deals they bring in, creating a shared incentive to drive overall business growth. Rev share models inherently mitigate risks by aligning the interests of originators with the long-term success of the lending institution. Since their compensation is tied to the performance of the deals they originate, originators are motivated to prioritize quality over quantity and to ensure the sustainability of the loans they bring in.

That being said, the capital structure needs to be one of shared ownership in which everyone believes they are building shared value. The downside risk for the originator in a rev share model is that although they make contributions to the company, there could be other items within the company (unrelated to their day-to-day responsibilities) that result in loss, and that loss negatively impacts their comp.

In a true rev share model, there should be connectivity from a profit-and-loss perspective that aligns the company with the originator, including but not limited to:

• Direct and indirect loan level costs.
• Loan loss associated with default.
• Gain on sale associated with loan sales.
• Some form of allocated overhead.

By linking compensation to the overall revenue and profitability generated by the team, rev share models promote a sense of unity and collaboration among team members. With this team cohesion, originators are more likely to share knowledge, support one another, and work toward collective success, ultimately benefiting the entire lending operation.

Considering Basis Points on Volume. With basis points on loan volume, originators earn fixed (or variable) basis points for each dollar of loan volume they generate, creating a direct correlation between results and compensation, and providing a clear incentive for originators to focus on closing deals and increasing loan volume. This model is both flexible and scalable, making it highly appealing to most private lenders. It allows lenders to adjust compensation structures based on market conditions, ensuring adaptability to changing business landscapes.

Vastly different from the collaborative approach of rev share, BPS on volume has a much greater focus on individual origination performance. As loan volumes increase, originators can see their compensation grow proportionally. Originators are driven to maximize their personal loan production, which can lead to healthy competition within the team. However, striking a balance between individual achievement and collective success is essential to maintain a cooperative team culture.

Choosing the Best Fit. The choice between revenue sharing and basis points ultimately depends on the goals, culture, and long-term strategy of your company. By carefully considering the strengths and potential pitfalls of each approach, you can tailor compensation structures that drive success, enhance team dynamics, and contribute to the sustainable growth of your lending operation.

In-Office Collaboration vs. Remote Flexibility

All organizations today face a new logistical decision: Where will our team members work? The choice between maintaining an in-office team structure or embracing the flexibility of remote work has become a dilemma for many private lenders.

The In-Office Allure. The in-office model has long been the hallmark of organizational structures—and for good reason. It fosters an irreplaceable energy through face-to-face collaboration, spontaneous interactions, and a shared sense of camaraderie and company culture. The synergy of minds converging in one room often sparks a creative combustion that gives rise to some of the most innovative ideas. The physical presence of a team cultivates streamlined communication, team building, and a sense of collective identity, while also providing the invaluable opportunity to maximize performance through direct management and supervision.

Remote Flexibility. On the flip side, the rise of remote work is rewriting the rules of engagement for businesses. Technology has enabled seamless connectivity, allowing teams to collaborate effectively from diverse locations. Embracing remote flexibility opens doors to a broader geographic talent pool, reduces operational costs associated with physical office spaces, and fosters a better work-life balance for employees.

Do take heed, however. A successful remote environment requires mutual trust, which you can help foster through transparent communication, clear expectations, and empowering employees to take ownership of their work.

Hybrid Redefined. As organizations grapple with the decision between in-office tradition and remote flexibility, a hybrid approach is a popular and compelling solution. Balancing the benefits of face-to-face collaboration with the advantages of remote work, this model can offer the best of both worlds. It can provide the needed work/life balance and flexibility many team members crave while maintaining the collaborative spirit crucial for synchronicity, camaraderie, and a positive, cohesive company culture.

As you navigate the nuanced decisions surrounding hiring the ideal origination team, structuring compensation models, and choosing between in-office vs. remote work, one truth becomes apparent: There is no one-size-fits-all solution. Each consideration requires a tailored approach to the unique identity and objectives of your organization.

To put it simply, your people are your power. This holds true no matter what domain you operate within and can serve as a bold reminder of the impact your choices have on the quality and talent your organization stands for. By embracing adaptability, fostering a positive culture and work environment, and remaining attentive to the ever-changing landscape of the private lending industry, you can build and sustain an engaged, high-performing, powerhouse team.