Private Lender The “Platformification” of Private Lending

/Private Lender The “Platformification” of Private Lending

The “Platformification” of Private Lending

By |2019-12-03T16:24:13+00:00December 3rd, 2019|Private Lender, Technology|0 Comments

Technology is ushering in a new generation of private lenders armed with the tools to drive growth and achieve scale.

Peer-to-peer lending may have exploded with the advent of the internet, but savvy private investors have long existed as alternatives to traditional bank lenders for borrowers seeking loans, particularly where real estate is concerned.

Historically, private lending offered investors the potential for higher returns than other investment vehicles, but the nature of the business often limited its scale. Private lenders tended to operate within a small local radius, and many were constrained by a lack of resources and funding relative to their traditional banking counterparts.

Today, innovation is ushering in a new generation of private lenders, and advances in technology are lifting many of the constraints that made it difficult to scale a successful business. Armed with new platforms, bigger networks and better data, these growth-oriented business owners are transforming the private lending industry for the digital age.

Opening Digital Doors to New Sources of Capital

Traditionally, many private lenders turned to a limited circle of investors as capital sources. Connections to capital were often correlated directly with a lender’s relationships to investors, which were often defined by personal or business ties. Friends, family members, business contacts and, in many cases, the lender’s own personal wealth provided the funding for issuing loans to borrowers.

If the lender’s business grew faster than their network of capital sources, they generally had no choice but to pump the brakes—or to seek financing from other sources. Establishing connections with hedge funds or large sovereign wealth funds required a significant investment of time and resources—hiring securities attorneys, drawing  up operating agreements and more. Seeking a line of credit from a bank was another option, but shorter track records or  limited personal wealth made  it difficult for some private lenders to qualify with banks’ stringent requirements.

Fortunately for the new generation of private lenders, technology has opened the floodgates to a more robust capital pipeline. Digital  platforms and online marketplaces connect private lenders with the global capital markets, which offer access to a vast number of investors and capital sources—affording lenders more long-term funding  and, most importantly, heightened liquidity.

Streamlining Operations and Boosting Efficiency

In private lending, advances in technology allow for a more systematic approach to loan origination. Where private lenders may have relied primarily on deal-making instincts honed over years  of experience, technology is driving a shift to a more standardized model.

These “turnkey” originations allow private lenders to more quickly deliver documents to borrowers and close deals, helping drive increased deal volume. In today’s competitive lending marketplace, speed is a critical differentiator.

Experience and instinct remain valuable tools for private lenders, but technology allows them to standardize operations. Instead of approaching each loan origination as a “gut- feeling” deal, they can rely on  a repeatable data-driven process that not only drives speed and growth but also facilitates specialization. Successful lender teams often have several in-house specialists, whether it’s the real estate expert, the marketing expert, the credit expert or others. Having more scalable and institutionalized processes frees up mindshare for these experts to focus on doing what they do best—or allow teams that do not have such clear roles to focus on developing them. When originations happen smoothly  and efficiently, team members can focus their time and  energy on other activities like marketing, underwriting and packaging loans.

Seizing the “Big  Data” Opportunity

In addition to illuminating new sources of capital and streamlining the loan origination process, technology offers private lenders a wealth of valuable, actionable data and analytics. Strategic business owners in the industry are leveraging all the data they can capture to serve a variety of purposes, from more focused marketing efforts to better-informed property valuations.

For example, private lenders can use technology to explore targeted lending opportunities according to property type, size, geographic location and other key attributes. When it comes to evaluating individual lending opportunities, publicly available records that are  easily accessible online can  be a valuable tool.

Lenders can approach a deal already armed with pertinent details such as the property’s title relationships, outstanding debt, knowledge of whether the property is distressed or in foreclosure, and more. In addition, there are several online valuation tools that use high-tech automation to determine a property value and facilitate a faster lending commitment.

For the new generation of private lenders, these advances are only the beginning. As artificial intelligence evolves, it may introduce opportunities for massive efficiencies that today we cannot begin to fathom or calculate. For entrepreneurs who are just getting started, as well as seasoned lenders looking to scale their successful operations, there has arguably never been a more exciting time to be in the business of private lending.

By |2019-12-03T16:24:13+00:00December 3rd, 2019|Private Lender, Technology|0 Comments

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