Sometimes the end of the road is just the beginning.

Private lending is competitive. It’s just part of the business. For many, it’s a rush. It’s what makes it truly enjoyable. There’s nothing like knowing you beat out the competition. Maybe it was on price. Or perhaps service made the difference. Or maybe the customer simply believed you were the best overall fit. Regardless, we can all agree that a smooth closing day is the best kind of day.

Where You Have Flexibility

Loans are structured in various ways to win over the borrower, in other words, to win the deal. To be more accurate, loans are structured in ways that capital markets will allow but are designed to still edge out the competition. Loans share several common aspects where you can introduce some flexibility. These are the areas you may be able to tailor to your advantage:

• Interest rate
• Origination points charged at closing
• Speed of inspections and draws
• Junk fees
• Term of the loan
• Pre-payment penalty
• Loan-to-value ratio
• Loan-to-cost ratio

Do these sound familiar? There are as many ways to structure a private loan as there are types of borrowers. Lenders are even known to create complex matrices and charts to keep brokers up to date, resending them every month as they change. Lenders consistently alter their loan guidelines in response to capital market pressures. But they also strive to remain competitive, or even innovative, when it comes to winning over borrowers—which also requires changes. The process is as complicated as you want to make it.

Structuring to Strengths

But what if there was another way? What if instead of emulating competitors and responding to their actions, lenders took a more proactive approach in structuring their products? What if lenders identified their strengths and proactively searched for another lender who complemented their offering.

The rapid and organic introduction of the table funding lender is one example. Many private lenders with a mandate to assemble large portfolios of loans in the space had and continue to have restrictions on their capital that prevent them from closing a loan directly. Their solution? They focus on purchasing closed loans from other lenders, and now a secondary market exists.

Although the introduction of this secondary marketplace may sound deliberate, it was simply a case of a lender (or set of lenders) adjusting their loan product in response to the restrictions their capital sources placed on them. There are many case studies for these partnerships in the private lending space today. If you study the results of these partnerships, you can see they have accelerated the growth of each party in a mutually beneficial way—a truly symbiotic relationship.

There are numerous avenues for partnerships. Too often lenders chase deals alone when they should have been hunting in a pack. Large deals can be alluring. There is a chance for a big payday up front if the deal is structured properly. Lenders under pressure to put capital to work find it easier to soak up that capital demand with one large loan. But there is a lesson private lenders can learn from traditional institutional lenders, especially from community banks: loan participation.

Local banks are rarely the only lender or investor on a larger loan. You might not see it, but it’s rare to see a single investor holding an oversized portfolio or loan. They share the risk, and the reward, by participating in each other’s deals. It’s a lesson private lenders should take to heart. Instead of lending on massive loans or lending to a single borrower who skews your entire loan portfolio, consider “participating.”

Intercreditor agreements. First and second liens. “A” and “B” pieces. We have all heard of these terms. They refer to scenarios in which a single lender is unable (or unwilling) to take on all the risk. In the private lending space, these relationships arise out of underwriting more often than partnerships. It’s far more common to see a borrower seek out disguised equity in the form of a subordinate lien than it is for two lenders to partner openly to get a deal closed.

Why? There’s a simple answer for anyone who is competitive. It’s natural, and it resides deep in our core. It’s fear.

For lenders to work collaboratively, they must share knowledge, information. best practices, and customer contacts—all the things many private lenders have kept as guarded secrets. But the truth is, lending money is the oldest business in the modern world. What secret knowledge does one lender really have over others? Customer contacts? The internet has leveled the playing field. If you’re still relying on a Rolodex for your competitive advantage, you might want to make sure your life affairs are in order because your time is up. Information was a form of power for a long time. But in this age, those who can actually execute reign supreme.

So why do some lenders believe they are better than others? There’s an answer for that too. It’s ego.

Lenders can work collaboratively rather than competitively. Our capital sources and desires are diverse. Why not work together to satisfy that demand? It’s too easy to claim the opportunity doesn’t arise. Lenders cross rooms with each other at conferences, on stages, and in advocacy groups. We set up booths and tables next to each other. We even call each other for underwriting information and share best practices. Why not share the wealth of opportunity?

Private lenders, take note. Our egos are using fear to keep us from working together. As a result, we often believe we are at the end of the road when, in truth, we are only at the beginning.