The Down-Low on Low Equity Loans
August 12, 2021
As mentioned in our first Back to Basics article, relationships can’t be your sole determination for risk and should take a backseat to hard facts. After all, bad things can happen to good people and not making data driven decisions about who to lend to and what to lend on can leave you in a tough position and your principal investment at risk.
In this second installment of our Back to Basics series, we address one of the most important ways to secure a private loan through safe equity buffers. Especially for new borrowers who are unknown entities, high equity buffers (represented as low loan-to-value or LTV ratios) are critical until a borrower can prove themselves. Many seasoned private lenders will tell you experience and relationships can often justify higher LTVs based on their proven track record. However, this can still lead to challenging situations if you aren’t prepared or lack experience.