Showing posts from 2012

Seven things to consider before lending money

A well made loan ensures the safe return of your money plus reasonable interest.  A poorly made loan can leave a hole where your money used to be, or worse!

Is the borrower gainfully employed?
If your borrower doesn't have a job, how are they going to repay the loan?  If the money is to start a business, see the next question.  If not, you'd better make sure they have some form of income they can divert into loan payments to you.  Lending money because someone doesn't have enough only works for the predators that use up and discard their borrowers.  For any responsible lender, a borrower with "insufficient" income is a poor candidate for a loan.
Does the borrower know the business?
If the money is to start a business, their plan had better include a way for the loan payments to get paid each month.  They also better have a solid background in the industry and a proven track-record of success in that industry.  Loaning money so someone can try something "the…

Diversified Lending by Industry

The same way an index fund helps to mitigate risk by balancing investments across many types of businesses, lenders can help ensure performance by making loans across a multitude of industries.

This is the second post about loan diversity.  Post One: Short and Long Term Loans

The mid to late 2000s was a disaster for many real estate lenders. I was among the millions of people deeply affected by the recent "mortgage crisis" for two reasons.  Watching the fission of the market as both investor and borrower, I got to see how overeager borrowers combined with overeager lenders to create the critical mass of debt.
In the fallout that ensued, hundreds of mortgage companies would be bankrupted, bailouts would be given, and the industry would have to take a long hard look at its practices.  Billions of dollars simply vanished from lenders' bottom lines.  It was a difficult time.
TrailsWeb made most of its money by way of association with the real estate industry.  We sell Money…

Diversified Investing - Short and Long Term Loans

Investing is a delicate balancing act of risk vs. reward.  Too much risk and you might not get your principal back, too little and inflation will devour the fruits of your labors.  Diversification of investments is a well known practice which aims to maximize returns while mitigating the risks.

Having worked directly with hundreds of lenders over the years, I've seen an impressive variety of loan structures.  People are lending money for some of the most amazing reasons, and the returns vary from paltry to obscene.  Non-profits are lending without interest while ultra-high-risk lenders attempt to double their money in two months.
In this and the blog posts to follow, I hope to share my opinion on how lenders have succeeded in making a living by lending money.
Diversifying Your Loan Portfolio with Loans of Variable Lengths Balancing stability, profitability, and cash flow is tricky for a private lender.  We need to ensure we have enough cash coming in to pay the bills and make new…

Four Ways to Get Consistent Payments from Borrowers

As a small lender, it's much more important that every one of my loans stays on track.  Once the loan is made, the terms are set, but I can still have an active role in ensuring the performance of my accounts.  These simple steps can help minimize risk and bring consistency to your cash flow.
Deposit checks immediately When the borrower sends the payment, they've marked a piece of their bank account with your company's name.  The money is set aside, and typically, the funds are credited based on the date received and not the date deposited.  The borrower will appreciate the quick turnaround to their bank.
From the day they mail the check, each day that passes your money is sitting in their bank account collecting dust instead of interest.  If it's there too long, the borrower might find another use for it before the check clears! Send statements like a metronome Paying the bills on a fixed pay schedule is a fact of life for any modern adult.  Our borrowers receive the…