NPLA Conference Session Recap: Capital Markets — Exploring Economic Shifts in Private Lending

NPLA Conference, Austin, TX — October 17, 2023

Author: Tucker Wade, Senior Director of Legal and Compliance at GoDocs

The NPLA Conference’s “Capital Markets — Exploring Economic Shifts in Private Lending” session was an insightful discussion featuring some of the industry’s leading experts. The session gathered key figures in private lending, including Jon Hornik of Private Lender Law, Eric Abramovic of Roc Capital, Jeffrey Tesch of RCN Capital, Keith Lind of Acra Lending, John Beacham of Toorak Capital Partners, and Alex Offutt of Constructive Capital.

Where is the Fed going with rates?

The panel reached a consensus that, despite recent rate hikes, there may not be any additional increases in the near future. Acra and Roc Capital, among others, reported a healthy flow of deals, indicating that private lending is still going strong. However, the question remains: when will the other shoe drop? If the demand for capital falls short of the actual appetite for it, then raising interest rates is the only logical option. As a result, the consensus was that private lenders should be prepared to operate in a world with current rates for an extended period. Businesses need to manage their operations as if rates might increase by another 200 basis points and be prepared for any eventuality.

Are there specific areas private lenders are avoiding or leaning into in their lending strategies today?

In the context of private lending, it was observed that certain geographical locations present distinct challenges for lenders. The Midwest was noted to have an uptick in lending activity, while California was considered a tough state for private lenders. Additionally, states like New York and New Jersey were pointed out to have lengthy and complicated foreclosure processes, which could lead to higher delinquencies over time. To navigate these challenges, private lenders were advised to adopt a more conservative approach to underwriting, recognizing that different states may require distinct underwriting criteria.

For loan buyers, what is your ideal customer/partner in this current marketplace?

The session highlighted a crucial aspect revolving around loan buyers in the current market, primarily focusing on ideal loan customers or partners. The consensus was that the most preferred customers and partners treat the loans they sell to buyers as if it were their own capital. Lenders should regard themselves as partners with the buyers, and a crucial gauge for this partnership is whether the customer or partner would feel a sense of accountability if the loan were to face challenges or default.

To maintain strong partnerships, customers and partners must be mindful of appropriate loan-to-value (LTV) and debt service coverage ratio (DSCR) while lending. In an environment where the market is more competitive, and demand is lower, the reputation of lenders to those who purchase their loans takes on even greater importance. Therefore, making “good loans” becomes a top priority for lenders to maintain their reputation and build strong relationships with their customers and partners.

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The insights of the Capital Markets session were thought-provoking, shedding light on the ever-evolving private lending landscape, including the direction of interest rates, regional variations, and the qualities of ideal customers and partners.

As margin compression occurs on the investment side (25%, down from 33%), lenders must explore operational efficiencies to sustain overall profitability. The wisdom shared during the session highlights the importance of private lenders being adaptive and prepared for the uncertainties ahead. GoDocs is committed to supporting the industry with innovative solutions that streamline operations, enhance efficiency, and enable lenders to make “good loans” even in changing market conditions.

The evolving private lending landscape demands proactive measures. GoDocs empowers lenders with comprehensive and user-friendly loan document automation tools, enabling seamless execution of high-quality and customer-friendly loans. This leads to the creation of robust loan portfolios for lenders engaged in loan holding, servicing, or selling.

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Gaining a Competitive Edge with GoDocs

To maintain or gain the competitive edge and strive to be #1 in the lending industry, private lenders must continually adapt and evolve. Embracing next-generation technologies and solutions becomes imperative, and that includes harnessing the power of the loan document automation ecosystem offered by GoDocs. By leveraging GoDocs’ cutting-edge automation tools, private lenders can streamline their loan document processes, improve efficiency, reduce errors, reduce resources, and enhance operations to handle any loan type, any loan size, and any loan volume while mitigating risk automatically.

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