Many Hard Money Lending companies eventually run into the same problem. They have more deals coming in than capital to fund their deals. You might find yourself scrambling before each closing, piecing together funds at the last minute, or relying on a small group of investors without any real system in place to consistently grow and strengthen your capital base.
This article breaks down the exact capital raising framework I have used for over 18 years. The 1.0 version that gets you started, and the 2.0 upgrade that turns your capital investor base into a self-sustaining machine. No cold calls. No gimmicks. Just a repeatable process to help raise all the money you will ever need to fund your private lending business.
Make sure to check with your Attorneys, CPA and other professionals as this information is for educational purposes only.
Article Outline
- Who You Should Raise Capital From (And Who to Avoid)
- Using DISC Profiles to Identify Ideal Investors
- Common Professions That Make Great Capital Partners
- The Right Investor Size for Private Lending
- Your First and Second Degree Network Is All You Need
- The Capital Raising Process: Introduction to Close
- Capital Raising 2.0: Scaling Your Investor Base
- Weekly Investor Payments as a Growth Engine
- When to Cut Investors Loose
- Exclusive Referrals and the Long Game
Who You Should Raise Capital From (And Who to Avoid)
Going after the wrong capital investors will lead to frustration and potential failure. I learned this the hard way early on, and I am going to shortcut it for you. Knowing who to target saves you months of spinning your wheels with prospects who will never fund.
Just as important as identifying who to pursue is recognizing who to avoid. Not every person with investable capital is the right fit for your lending operation. The wrong investor will cost you more in time, headaches, and stress than they are worth in capital.
Using DISC Profiles to Identify Ideal Investors
If you are familiar with the DISC personality profile, this is where it starts. D is Dominant, I is Influence, S is Steadiness, and C is Conscientious. I target two of these types and stay away from the other two.
Target: Dominant (D) Personality Types
Dominant personalities are typically smart, successful, and decisive. They have investable capital. They understand business intuitively. When you explain what you do, they get it fast. They make quick decisions. They are not going to kill you with questions or take up all of your time.
These are your business owners, lawyers, finance professionals, and accomplished entrepreneurs. They are great relationships to have because they know other influential people. A “D personality type” who funds a deal with you and has a good experience becomes a referral machine. Target number one. ALWAYS.
Target: Steadiness (S) Personality Types
Steadiness types often come through relatives and referrals. They are relationship based. When someone they trust refers them to you, they carry a very high amount of trust into the relationship from day one. Your job is simply to do right by them, let the deals take care of them, and maintain that trust.
“S personality types” often have little to no questions. They are fantastic to work with. They fund their deals, collect their interest, and leave you alone to run your operation. That is the ideal investor relationship.
Avoid: Influence (I) Personality Types
“I personality types” talk a big game. They will tell you they have money to invest, that they want to do deals, that they can refer you to somebody important. And oftentimes there is just not enough substance behind the talk. Not as much as the game they are pitching.
“I personalities” are fantastic people. Great salespeople. Life of the party. Awesome to hang out with. But they are not the best targets for raising capital. Learn to identify them early and save yourself the time.
Avoid: Conscientious (C) Personality Types
This is the tricky one. “C personality types” are analytical. They are savers and investors. They do have investable capital, which makes them ATTRACTIVE on the surface. But they will kill you with questions. They second guess themselves over time. They underwrite themselves out of even the best deal.
If you manage to close a C personality investor, the problems might end up getting worse. Weekly status updates. Constant questions about deals where nothing out of the ordinary is happening. High maintenance across the board. They are not the best targets when you are building a capital base that needs to scale.
Common Professions That Make Great Capital Partners
Business owners are often D personalities and they make excellent investors. Real estate people who have invested in property or have real estate in their background are also strong targets. If they did good deals in the past and now hold rental income properties, they often have investable capital without the best place to deploy it. And they already understand your business.
Doctors and lawyers are commonly D personalities who do not think in business terms every day. They will trust you to do what you do, as long as they identify that you are competent and running a good operation. Once they are in, they tend to stay in and stay quiet. Those are great investors.
Finance professionals can work, but you might run into the problem that they invest in their own thing. Advisors may not be ideal. But other types of finance people are absolutely looking for the opportunities that hard money lending provides.
The Accountant Exception
Accountants are interesting because they can swing between D and C personality types. By the profile alone, you might avoid them. But in my experience, I have 5-6 accountants investing with me right now. A couple of them are at seven figures. They have been FANTASTIC clients for years.
Here is a story. Our former CPA who did our company taxes for a long time watched us perform for 4-5 years. He saw our portfolio grow. He knew our capital deployment. He knew everything about our books. Years later after we outgrew his firm into a bigger firm he reached out and said, I have seen you guys perform, I have watched your income increase, I have seen happy investors. I wanted in now too. Invested funds and has been with us ever since.
That CPA took his time. That is part of the long play. Capital raising is a long term relationship game.
The Right Investor Size for Private Lending
The ideal investors are going to fall somewhere between $50,000 and $2 million in investable capital. The bulk will land in the $100,000 to $500,000 range. That is your sweet spot for residential and small commercial hard money lending.
I tried early on to raise money from whales. Friends of friends with $20 million to invest. The rates for this type of investments being ~10% and are taxable (1099 interest income), were not attractive to them. They were looking for higher returns or something with tax advantages. Focus your energy on the $100K to $500K range. That is your target.
Your First and Second Degree Network Is All You Need
If you remember the early days of LinkedIn when it used to show your first degree connections and second degree connections. The people you know and the people they know. In the world of raising capital for hard money lending, those two degrees contain all the people you will ever need.
Run the multiplier. You probably know a few dozen people offline, hundreds online. Each of them knows a similar number. You are talking about a massive sphere of potential investors, and you are only one introduction away from any of them. No cold emails. No cold calls. There is no reason for it and no benefit to it either.
The work is in identifying who in your network and their network has investable capital. That is business development work. But it is warm business development compared to other things. Every single investor conversation starts with a personal introduction.
The Capital Raising Process: Introduction to Close
This process took a few years to learn but after you get this down, it is the secret sauce. It is the exact same steps every single time. Here is how it works.
Step 1: Get an Introduction
Somebody you know introduces you to a potential investor. Maybe over email, maybe at lunch, maybe on the golf course. You let them know what you do, gauge a little interest, and see if they would like to take a look at your pitch deck. Very casual. You are not selling anything. Not trying to close. Not pushing.
Step 2: Send the Pitch Deck and Schedule a Meeting
If they say yes to seeing your materials, email the pitch deck over. Then go for either an in-person meeting or a phone call to walk them through it. Do not rush this. Do not send it and demand a meeting the next day.
If you push too hard, they get anxious. They feel like you need their money too much. That is the last thing you want them thinking. In-person is always better, but a lot of D personality types have their own agenda and may not have an hour for lunch. A phone call works fine.
Step 3: Present and Put Them on a Shelf
In the meeting you show them everything. How your loans are structured, the kind of loans you do, your portfolio and track record, lending areas, what happens if a loan defaults, terms and most importantly actual case studies of past deals or sample deals you plan to do. Typically by now they are interested in working with you because they are impressed by the conservative deals you are doing. Remember you have to be a good lender and do safe loans if you are planning to raise money. The prospective capital investors will ask you the next steps. Then comes the most important part of the entire process.
Tell the investor that there is no open opportunity at this time but there might be in the near future. All loans in the pipeline are currently funded. You are well capitalized. That being said, you are growing, so you should have some availability for them in the next 30 to 60 days.
This does several things. It lets them know that other investors are actively funding your deals. It tells them you are not desperate. It creates scarcity without being manipulative about it. If you told them that you needed their money today in order to close a loan tomorrow they would see you were desperate for capital and scare them off completely. Make sure you go into investor meetings with confidence. You speak properly. You present well. And frankly, you communicate that you will survive just fine without their funds. That is the single most important thing to convey.
Step 4: Circle Back with a Live Deal
A month or so later, you have a new live deal ready to go. You email them. Got something for you. I think I can get your funds deployed. Here is what the deal looks like. You send a summary with all the relevant documents. Then you get on the phone to answer questions and explain how the rest of the process works.
Step 5: Close and Define Communication
You get their verbal commitment. Send over the agreements prepared by your attorney, along with wire instructions. These agreements, sometimes called a Lending and Servicing Agreement, should be drafted by a qualified attorney familiar with private lending. Get one final confirmation. Then they wire funds, you close the deal, and you disperse documents electronically.
Define when they will hear from you. If payments are coming in on time and the borrower is doing their job, the right answer is they will get their monthly check and a statement. No need to talk unless a payment is missed, construction goes sideways, or a deal pays off and you are lining up the next one. One mistake I made early was promising to keep investors posted on every construction draw. That became overwhelming fast and does not scale.
Capital Raising 2.0: Scaling Your Investor Base
Once you have deals on the street and a base of capital, the 2.0 system kicks in. This is what takes you from a few million deployed to $20 million and beyond. We currently have around $50 million outstanding at any given time, with plenty more on the sidelines. This system got us there.
Use Closed Deals as Investor Marketing
Every time you close a deal, use it as soft marketing to your capital investor leads. Case-study the deal. For example, we just closed this loan in this city and state to a real estate investor on a fix and flip with these terms. This builds credibility slowly in their minds. Other people are funding deals. Other people are getting paid. And they are not in yet.
People with money, accredited investors, want access to alternative investments. Make sure to follow the psychology script. That is exactly why the shelf technique works, and why showcasing funded deals to your leads list drives new capital.
Proper Software Changes Everything
Around this stage, invest in proper loan servicing software. The popular ones are Lendrsoftware.com and The Mortgage Office. It is built specifically for hard money lending, tracking portfolios, paying investors, and managing all the data points you need. The software pays for itself through automation alone.
Weekly Investor Payments as a Growth Engine
Many funds, lenders and hard money operators standardly pay capital investors monthly or quarterly. We set up a way to pay weekly based on all the outstanding funds that had come in the week before. Not all borrowers pay on time, there are other funds that come in throughout the week between per diem interest, post closing and more. By disbursing funds more often it is a great way to stay in front of your capital investors and keep them happy by making money more frequently. Investor software helps automate this and provides proper and regular reporting.
In the body of that email is a reply address. For any questions, email me at this address. That is the key. Think about the psychological trigger of getting paid EVERY week. This guy pays me. This guy pays me. This guy pays me. They are going to be happy. They are going to click that email link. And eventually want to reinvest and refer friends, family and business associates.
This snowball effect is real. Ten investors become 20. 20 become 50. And at some point, you have more capital than you need. That is a good problem to have.
When to Cut Investors Loose
Having excess capital gives you something invaluable. The ability to fire investors who are not good working relationships.
Early on, I was chasing this one investor. Finance guy, real estate guy, also a college professor. He would not commit. But I was hungry and aggressive and did not want to accept that this apparent good investor was not moving forward. I eventually got him in. And from the beginning he was adversarial. Different teams. Not on the same page.
An older, more experienced lender told me flat out. Cut him loose. At some point that guy is going to try to sue you over something or bite you about something you do not need. Over time, as you build capital, you develop the resources and the confidence to say I do not need this person. His loan paid off. I sent his money back. Done.
Same thing happened with another investor. Wealthy guy, big insurance company. Had a deal go into default, which happens on occasion. Hopefully well under 10% of your portfolio. But instead of working together as a team to resolve the situation, he immediately came after us like we had done something wrong. Probably a C personality who could not sleep at night over a normal business occurrence. We used our own funds to pay him off and he was out.
When you have the right investor relationships, you are on the same team. You are happy when borrowers are performing. Investors are happy. Everyone wins. That is the standard you should hold.
Exclusive Referrals and the Long Game
Once your capital base matures, you can play the exclusive referral card. Reach out to your investors and let them know you are growing and potentially can handle new capital soon. One of our top capital investors referred his late friend’s son, a very successful real estate and business guy who also did some private lending. My business partner Chris and I drove to meet up for lunch with him and his son. I went through the exact same process I described above. Even after 18 years, the process does not change.
I emailed the info ahead of time. Had the meeting. Let him know we are fully funded but should have availability in 30 to 60 days. Circled back when a deal made sense for him. Got him in. That guy is close to whale territory for us. And he is a great contact. Influential business guy.
Building Your Capital Raising System
There is no shortcut. There is no magic club. There is a process that has worked for over 18 years through every market condition imaginable. Identify the right personality types. Stay within your first and second degree network. Present with confidence and without desperation. Put investors on a shelf. Close them when a real deal materializes. Automate your payments. Let the snowball build.
Friends and family referrals will grow organically. Existing investors will put more money with you. You will end up with more capital than you actually need. And at that point, you can trim the bottom, add better investors at the top, and run a lending operation that serves you and your capital partners for decades.
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The information provided here is for educational purposes only and does not constitute financial or investment advice. Always perform your own due diligence and consult with qualified professionals before making investment decisions.
