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Private Lenders: Getting The Lowest Cost of Capital


Hi Tarek here from Royce Stone Capital, today we're talking about private lending but more specifically about how you can ensure you get the lowest cost of capital possible.

Lowest cost in private lending

Now i've worked on a number of transactions that are fairly sophisticated and complex and what i'm hoping to do today, is to share with you some valuable insights that you can use for your next deal.

The right lender for your deal type

Now the number one thing that you need to do is you need to ensure you're working with the right private lender for your specific deal type. Now there are a number of private lenders out there in the market with different deal preferences some lenders like long-term deals, some like short-term deals, some like high-risk, some like low risk, some lenders like commercial and residential property security, others like property development, or they like land banking or regional property security. So picking the right private lender for your specific deal type is absolutely essential because what that means is they'll understand the risks involved in your deal they'll understand how to mitigate those risks but more importantly because they're focused on that specific deal type they'll give you the best terms possible for that deal at the best rate possible so that's the first step.

Family office or HNW investor funds directly

Now the next thing that you want to do is you want to source funds from a family office or high net worth investors like the ones that we work with, or with a fund that's backed at an institutional level or another wholesale source of capital . You see right now in the market there are a number of funds out there but what they have to do is they have to take money from smaller investors and provide them with a return. That means they need to charge a margin on top, then sell you that money which makes the capital more expensive. Also with those funds the terms aren't as flexible whereas if you're working with a family office or a high net worth investor you can get funds directly from the source. But more importantly they'll understand your deal and they'll be able to offer you better terms because they're a bit more

Flexible funding

Flexible and they don't have to follow a specific mandate and you'll get a much better outcome for yourself.

Exit strategy with funding

Now the next thing that you want to do is you want to de-risk the loan as much as possible so you want to show them you've got a clear exit strategy and more importantly what your backup options are.

Pay Interest Monthly

The next thing that you want to do is you want to show them that you're going to pay interest monthly because if you can pay interest monthly you're actually going to get much better terms and a much better interest rate than if it's capitalized.

Character & Funding

Now this next point is a really important point and it comes down to Character. You want to show them you've got a track record of success and that you're responsible and that you're going to treat their money as though it's your own money because if you do this, people will have more trust in you and more faith in you and they're more likely to support you and offer you better terms.

Now that's it for today's video if you want some more resources on how private lending can help you solve some of your business problems, head over to our website roystonecapital.com.au there are a number of case studies there

Till next time take care and all the best

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