At PeerStreet, we work with private money lenders in a variety of sizes, from mom-and-pop shops composed of just one or two people, to firms with 40 or 50 employees. Many of our lending partners are perfectly happy—and perfectly profitable—staying just the way they are. There’s nothing wrong with that. Others have bigger ambitions. They want to go from local to regional, or even from regional to national.
And then there are those private lenders who have more business than they can handle. No one wants to increase overhead needlessly, of course. But at a certain point, in order to grow, private lenders need to hire. And to grow smart, they need to hire the right talent.
In this article, we’ll draw on our experience with hundreds of lenders to lay out how and when to hire to ensure that your company gets where you want it to go.
Specifically, we’ll discuss:
- The tell-tale signs of when to hire, so that you don’t hire too soon and needlessly grow overhead
- The four major roles to hire for
- What to look for when hiring for each of these roles
- Expanding beyond the four roles to satisfy even larger growth goals
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When to Hire
Like virtually all business owners, private lenders generally start small. They might have a partner, maybe an administrative staffer who works part-time. At a company like this—and even at places that are a little larger, with say, five employees—people tend to wear a lot of hats: sourcing loans, lining up capital, handling the underwriting, and servicing loans, too.
We’ve seen a lot of smaller, local lenders dramatically increase their loan volume without bringing on more employees. Running lean and growing quickly are by no means mutually exclusive. Eventually, though, as a lender does more and more volume, there will be signs of friction—employee burnout and churn, mistakes on paperwork, higher rates of delinquency—that result from moving too fast and perhaps not doing the proper due diligence because existing personnel simply can’t handle the work.
At this point, it’s time to hire or scale back. It’s also time to think more about specialization—what makes a potential hire best suited for a particular role in your shop. And because private money lending works, essentially, on an “assembly line” model, as a general rule you’ll need to bolster your roster in each of these categories.
Four Major Roles
Sales / Sourcing Loans: When it comes to hiring someone who will be specifically responsible for sourcing loans for your private money lending company, personality and hustle are key. While it certainly won’t hurt if a candidate for this role brings some technological bonafides to the table (e.g., a working knowledge of how to use SEO keywords to generate leads through your website), this is primarily a public-facing job, with a strong emphasis on getting out of the office and pounding the pavement.
Sourcing loans successfully requires grit, perseverance, and excellent social skills more than it does deep industry experience. You want someone energetic and self-directed—someone who will take it upon themselves to find and show up at mortgage conferences, trade shows, investor luncheons, and the like, shaking hands with as many investors, borrowers, and brokers as possible to develop new channels of business. The key for your sourcer is to inspire confidence, without ever overpromising.
Back at the office, this job will also involve some research skills—developing investor lists and rosters of brokerage companies to target via phone and email. In short, it’s a full-court-press kind of position. The right person for the role is dynamic, charismatic, and hungry to create and nurture the networks that keep your company supplied with high-quality loans.
Underwriting: No matter how many loans you source, your business will slow down if you don’t have the underwriting capacity to process them. At PeerStreet, we’ve seen this happen even to some of our most successful lending partners—a bottleneck that hinders what might otherwise be explosive growth. Granted, owing to broad, ongoing economic expansion, quality underwriters can be tough to find these days. But here’s what you ought to be looking for:
A good underwriter is intensely analytical, detail-oriented, risk-averse, and credit-minded. They’ve been trained in how to assess credit risk, which is to say they’re skilled at assessing a borrower’s track record and their ability to perform in accordance with the business plan they’ve proposed. They’ll ask, What’s the value of the collateral? If the borrower’s business plan fails, how am I going to get my money back? Am I going to get taken out by a sale, or refinanced by a bank? If it’s the latter, how much rental income will the property need to demonstrate?
If an underwriter is competent, they understand that property valuations should be driven primarily by data, rather than intuition, and their analyses will be scrupulously supported by appraisals, credit scores, and credit reports. That said, they will also have a feel for the pulse of the markets and submarkets in which they work. Do they understand comps? Can they tell you whether days on market are increasing or decreasing, or what effect inventory is having on sales volume? Can they analyze whether a proposed set of improvements can be absorbed by the submarket?
The answers to these kinds of questions will tell you whether or not you have a viable candidate. Although a lack of underwriting capacity can slow down growth, bringing on someone who’s not well-suited for the job can have a disastrous effect on your business. In hiring for this role, it’s therefore wise to apply underwriter-like caution.
Recruiting Capital: At PeerStreet, we tend to see the firm’s founder and/or CEO largely retain this responsibility, at least until a private lender has, say, 25 employees or so. At that point, many will hire someone into an investor relations or capital markets role. The right person for this job will combine the qualities of a good loan-sourcing employee and a skilled underwriter. Arguably the most sophisticated role in a private money lending firm, it demands both complex analytical abilities and excellent people skills.
As your shop gets bigger, you’re going to develop multiple sources of capital. And as you get better at what you do, you’re bound to deal with increasingly sophisticated individual investors and investing firms, to whom your capital markets hire will act as a fiduciary. It’s a tremendous responsibility, and one best suited to someone with substantial experience in the industry; this is not a role for a junior hire.
This person will need to make regular determinations about which of your multiple investors you want to sell your loans to, taking into account economics, reliability, and ease of use; some sources of capital are simply easier to work with than others. At the same time, as a matter of strategy, you don’t want to put all your eggs in one basket. Nor do you want to alienate one loan buyer by seeming to favor another. Not everyone can get the best loans every time, and you need to spread the wealth around.
To perform this kind of diplomacy effectively, your capital recruitment employee needs to understand what your loan buyers need and how to deliver it to them reliably. They need to understand each loan buyer’s guidelines and do the research necessary to provide what they’re looking for. The job requires an in-depth understanding of how your loan portfolios are performing and why, and a readiness to answer detailed questions on the subject.
Sometimes this means delivering bad news—explaining what went wrong with a loan, for instance, or why someone is going to be seeing a big reduction in loan volume—without damaging a relationship with a loan buyer. It is a role that demands both a deft social touch and the ability to furnish fine-grained analyses rooted in deep understanding of your loans.
Loan Servicing: In addition to payment processing—an accounting function that demands attention to detail and a high degree of organization—a private lender’s loan servicer is effectively an asset manager. The role requires some of the same skills as underwriting, but with a greater emphasis on creativity, tenacity, and legal wrangling.
Your asset manager proves their mettle primarily when things go wrong, like when someone stops making payments on their loan. In these circumstances, you need someone who can get on the phone, talk to the borrower, and understand what’s going on. The borrower will almost always have a story to tell. Sometimes that story is not based in reality; they’re simply trying to delay and buy some time. Accordingly, the asset manager must have both a finely tuned “bullshit detector” and the capacity to create pathways for the buyer to make good by putting together a workable forbearance agreement.
In the event that a foreclosure becomes the next necessary step, the asset manager must also be able to work with attorneys to foreclose and move toward sale as quickly as possible. Because litigation, foreclosure, and bankruptcy law often figure in an asset manager’s day-to-day, you need someone who understands the legal basics, and who can manage attorneys with a firm hand. Otherwise, legal fees are likely to skyrocket.
If your capital markets hire is a bit like a diplomat, your asset manager must play the enforcer, making sure that everyone stays honest so that you get the highest possible recoveries even from troubled loans.
Grow Dynamically, With a Little Help From Your Friends
Private lenders don’t need huge teams to be successful. At PeerStreet, we have dozens of lending partners that do millions of dollars in loan volume every month while employing just a handful of people. But if you’ve begun to see signs that you’re doing more business than you can handle—late nights, spiking delinquencies, employee burnout—it’s most likely time to think about bringing on more staff.
Once you’ve hired for roles sourcing loans, underwriting, raising capital, and loan servicing, you might also consider bringing in-house some functions that you’ve outsourced until now, like marketing and legal. We’ve seen that as private lenders expand beyond their original areas of operation, it’s crucial for them to have a well-crafted brand and the apparatus to promote it in order to find the borrowers and funders they need to sustain their business in fresh territory.
At the same time, doing business in new states requires new kinds of licensing. And no matter how talented your underwriters are, when you dramatically increase your loan volume, you’re going to see some loans go bad. As a result, you might find yourself involved in more frequent litigation. As you transact with more sophisticated parties, you’re also apt to get involved in bigger, hairier deals—and to receive complicated legal documents to go with them. At this point, you’ll feel more comfortable—and work more efficiently—with in-house legal counsel at your side.
This is an exciting time in the life of your company, and PeerStreet’s team is ready, willing, and able to advise along the way. In fact, we do this for all of our lending partners—whether they’re transitioning from a mom-and-pop operation into a regional power, or looking to become a household name in private lending nationwide. Many of our staff have worked in-house for private lenders, so they know how to navigate the changes necessary to fulfill big ambitions. With strong hires and seasoned advisors to support you, you’ll be more than ready for the journey to successful growth.
Want to see how partnering with PeerStreet can help grow your private lending business?