How to Evaluate a Private Lending Deal

One of the most important skills in private lending is knowing how to evaluate a deal.

Because in private lending, your returns are not based on owning the property.

They are based on:

• The structure of the loan
• The strength of the borrower
• And the quality of the deal

Understanding how to evaluate these factors can help you make more informed decisions before committing capital.

Start with the Big Picture

Before getting into details, ask a simple question:

Does this deal make sense at a high level?

Look at:

• The type of property
• The borrower's plan
• The timeline
• And the exit strategy

If the overall picture feels unclear or unrealistic, that's a signal to slow down.

Evaluate the Borrower

The borrower is one of the most important parts of any deal.

Even a strong property can become risky if the borrower lacks experience or discipline.

Key things to look for:

Experience

• Have they completed similar projects before?
• Do they understand the type of deal they are doing?

Track Record

• Have they successfully completed past deals?
• Do they have references or a history you can review?

Communication

• Are they clear and transparent?
• Can they explain the deal in a way that makes sense?

A borrower who is experienced, realistic, and communicative is generally lower risk than someone new or unclear.

Understand the Property

The property is typically your collateral.

That means you need to understand:

• What it is worth
• What condition it is in
• And what it could realistically sell for

Questions to ask:

• What is the current value of the property?
• What is the after-repair value (if applicable)?
• How was that value determined?

Be cautious of overly optimistic valuations.

Loan-to-Value (LTV)

One of the most important metrics in private lending is Loan-to-Value (LTV).

This measures how much you are lending relative to the property's value.

Evaluate the Deal Structure

How the deal is structured matters just as much as the property itself.

Key elements:

• Loan Amount — How much capital is being deployed?
• Interest Rate — What return is being offered?
• Term — How long is the loan?
• Exit Strategy — Sale, refinance, or other means?

A clear, realistic exit strategy is critical.

Look at the Business Plan

If the deal involves renovation or repositioning, the borrower should have a clear plan.

Ask:

• What work is being done?
• What is the timeline?
• What is the budget?

Vague or overly optimistic plans can increase risk.

Risk Factors to Consider

Every deal has risk. The goal is not to eliminate risk—but to understand it.

Think Like a Lender

Evaluating deals requires a shift in mindset.

Instead of asking "How much can I make?" — ask:

"What could go wrong — and am I protected?"

That shift alone can dramatically improve decision-making.

Final Thoughts

Private lending is not about chasing deals. It's about understanding them.

The more structured your evaluation process is, the more confident you can be in your decisions.