I want to share a secret tip for capital growth in private lending. It’s challenging, at least in my experience, because there are so many moving pieces. You need to be present and visible. Capital is tough to raise simply because people invest in those they know, like, and trust—plain and simple. It takes a lot of trust to give someone $100,000 and say, “Here, go invest it.”
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That said, it’s not impossible. In 2024, we raised $1.5 million in capital. But I also know people with $50 million lending funds who are actively turning away capital because they don’t have enough deals. As you grow, your capital often outpaces your deal flow, and eventually, you’ll face this same dilemma.
When you’re small, you might think, “If I had $10 million, I could do so many deals.” But that’s not realistic. Your business needs to grow organically along with your capital.
… you might think, “If I had $10 million, I could do so many deals.” But that’s not realistic.
One thing many new lenders overlook is how your capital compounds over time. For example, we currently have 17 investors contributing around $3 million. Of these, 15 prefer their interest to be reinvested instead of taking it as cash. This allows their capital to grow, which is quite common in the industry.
Here’s an important point: If you pay your capital investors 10% annually, your capital will grow at 10% as well. So with $3 million, your capital will increase by $300,000 over the year, assuming you do nothing else. If you have a $40 million fund, that 10% growth adds $4 million to your capital stack annually.
But for those wondering how this helps you when you’re short on capital, it’s a reminder that capital grows even without active fundraising. So, even if you do nothing today and don’t raise any more money this year, your capital stack will still grow. As your capital grows to $8 million, $10 million, $12 million, or more, the additional interest income can add $1.2 million a year to your business.
Sometimes, though, you might need to return capital to investors because you don’t have enough deal flow to support it. This can be an opportunity to transition out higher-earning investors. For instance, when we first started, some investors received 12% annually, which is high for the industry. New investors now earn anywhere from 9% to 10.5%.
As your capital grows, and if you don’t have enough deals, you can slowly transition out the higher-earning investors without making a big announcement. Instead of adding them to new deals, simply say, “We don’t have any upcoming deals,” or, if you do have deals, let them know the interest rate is lower than they’re accustomed to. This keeps things smooth without confrontation.
In summary, your capital stack will grow organically over time. You may want to scale faster, but remember that growth happens whether you’re actively raising capital or not. For me, it’s been comforting to see my capital grow steadily, even without being overly aggressive in raising funds. I hope this insight helps!
… your capital stack will grow organically over time.
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